[Federal Register Volume 76, Number 231 (Thursday, December 1, 2011)]
[Proposed Rules]
[Pages 74854-75420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30358]



[[Page 74853]]

Vol. 76

Thursday,

No. 231

December 1, 2011

Part II





Environmental Protection Agency





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40 CFR Parts 85, 86, and 600





Department of Transportation





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National Highway Traffic Safety Administration





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49 CFR Parts 523, 531, 533 et al.





2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions 
and Corporate Average Fuel Economy Standards; Proposed Rule

Federal Register / Vol. 76 , No. 231 / Thursday, December 1, 2011 / 
Proposed Rules

[[Page 74854]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 85, 86, and 600

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 523, 531, 533, 536, and 537

[EPA-HQ-OAR-2010-0799; FRL-9495-2; NHTSA-2010-0131]
RIN 2060-AQ54; RIN 2127-AK79


2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas 
Emissions and Corporate Average Fuel Economy Standards

AGENCY: Environmental Protection Agency (EPA) and National Highway 
Traffic Safety Administration (NHTSA).

ACTION: Proposed rule.

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SUMMARY: EPA and NHTSA, on behalf of the Department of Transportation, 
are issuing this joint proposal to further reduce greenhouse gas 
emissions and improve fuel economy for light-duty vehicles for model 
years 2017-2025. This proposal extends the National Program beyond the 
greenhouse gas and corporate average fuel economy standards set for 
model years 2012-2016. On May 21, 2010, President Obama issued a 
Presidential Memorandum requesting that NHTSA and EPA develop through 
notice and comment rulemaking a coordinated National Program to reduce 
greenhouse gas emissions of light-duty vehicles for model years 2017-
2025. This proposal, consistent with the President's request, responds 
to the country's critical need to address global climate change and to 
reduce oil consumption. NHTSA is proposing Corporate Average Fuel 
Economy standards under the Energy Policy and Conservation Act, as 
amended by the Energy Independence and Security Act, and EPA is 
proposing greenhouse gas emissions standards under the Clean Air Act. 
These standards apply to passenger cars, light-duty trucks, and medium-
duty passenger vehicles, and represent a continued harmonized and 
consistent National Program. Under the National Program for model years 
2017-2025, automobile manufacturers would be able to continue building 
a single light-duty national fleet that satisfies all requirements 
under both programs while ensuring that consumers still have a full 
range of vehicle choices. EPA is also proposing a minor change to the 
regulations applicable to MY 2012-2016, with respect to air conditioner 
performance and measurement of nitrous oxides.

DATES: Comments: Comments must be received on or before January 30, 
2012. Under the Paperwork Reduction Act, comments on the information 
collection provisions must be received by the Office of Management and 
Budget (OMB) on or before January 3, 2012. See the SUPPLEMENTARY 
INFORMATION section on ``Public Participation'' for more information 
about written comments.
    Public Hearings: NHTSA and EPA will jointly hold three public 
hearings on the following dates: January 17, 2012, in Detroit, 
Michigan; January 19, 2012 in Philadelphia, Pennsylvania; and January 
24, 2012, in San Francisco, California. EPA and NHTSA will announce the 
addresses for each hearing location in a supplemental Federal Register 
Notice. The agencies will accept comments to the rulemaking documents, 
and NHTSA will also accept comments to the Draft Environmental Impact 
Statement (EIS) at these hearings and to Docket No. NHTSA-2011-0056. 
The hearings will start at 10 a.m. local time and continue until 
everyone has had a chance to speak. See the SUPPLEMENTARY INFORMATION 
section on ``Public Participation.'' for more information about the 
public hearings.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2010-0799 and/or NHTSA-2010-0131, by one of the following methods:
     Online: www.regulations.gov: Follow the on-line 
instructions for submitting comments.
     Email: [email protected]
     Fax: EPA: (202) 566-9744; NHTSA: (202) 493-2251.
     Mail:
     EPA: Environmental Protection Agency, EPA Docket Center 
(EPA/DC), Air and Radiation Docket, Mail Code 28221T, 1200 Pennsylvania 
Avenue NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-
2010-0799. In addition, please mail a copy of your comments on the 
information collection provisions to the Office of Information and 
Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk 
Officer for EPA, 725 17th St., NW., Washington, DC 20503.
     NHTSA: Docket Management Facility, M-30, U.S. Department 
of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue SE, Washington, DC 20590.
     Hand Delivery:
     EPA: Docket Center, (EPA/DC) EPA West, Room B102, 1301 
Constitution Ave. NW., Washington, DC, Attention Docket ID No. EPA-HQ-
OAR-2010-0799. Such deliveries are only accepted during the Docket's 
normal hours of operation, and special arrangements should be made for 
deliveries of boxed information.
     NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue SE, Washington, DC 20590, between 9 a.m. and 4 p.m. 
Eastern Time, Monday through Friday, except Federal Holidays.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2010-0799 and/or NHTSA-2010-0131. See the SUPPLEMENTARY INFORMATION 
section on ``Public Participation'' for more information about 
submitting written comments.
    Docket: All documents in the dockets are listed in the http://www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., confidential business 
information (CBI) or other information whose disclosure is restricted 
by statute. Certain other material, such as copyrighted material, will 
be publicly available in hard copy in EPA's docket, and electronically 
in NHTSA's online docket. Publicly available docket materials are 
available either electronically in www.regulations.gov or in hard copy 
at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, 
Room 3334, 1301 Constitution Ave. NW., Washington, DC. The Public 
Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through 
Friday, excluding legal holidays. The telephone number for the Public 
Reading Room is (202) 566-1744. NHTSA: Docket Management Facility, M-
30, U.S. Department of Transportation, West Building, Ground Floor, Rm. 
W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590. The Docket 
Management Facility is open between 9 a.m. and 5 p.m. Eastern Time, 
Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: EPA: Christopher Lieske, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; telephone number: (734) 214-4584; fax number: (734) 214-4816; 
email address: [email protected], or contact the Assessment 
and Standards Division; email address: [email protected]. NHTSA: 
Rebecca Yoon, Office of the Chief Counsel, National Highway Traffic 
Safety Administration, 1200 New Jersey

[[Page 74855]]

Avenue SE., Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

A. Does this action apply to me?

    This action affects companies that manufacture or sell new light-
duty vehicles, light-duty trucks, and medium-duty passenger vehicles, 
as defined under EPA's CAA regulations,\1\ and passenger automobiles 
(passenger cars) and non-passenger automobiles (light trucks) as 
defined under NHTSA's CAFE regulations.\2\ Regulated categories and 
entities include:
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    \1\ ``Light-duty vehicle,'' ``light-duty truck,'' and ``medium-
duty passenger vehicle'' are defined in 40 CFR 86.1803-01. 
Generally, the term ``light-duty vehicle'' means a passenger car, 
the term ``light-duty truck'' means a pick-up truck, sport-utility 
vehicle, or minivan of up to 8,500 lbs gross vehicle weight rating, 
and ``medium-duty passenger vehicle'' means a sport-utility vehicle 
or passenger van from 8,500 to 10,000 lbs gross vehicle weight 
rating. Medium-duty passenger vehicles do not include pick-up 
trucks.
    \2\ ``Passenger car'' and ``light truck'' are defined in 49 CFR 
part 523.
[GRAPHIC] [TIFF OMITTED] TP01DE11.000

    This list is not intended to be exhaustive, but rather provides a 
guide regarding entities likely to be regulated by this action. To 
determine whether particular activities may be regulated by this 
action, you should carefully examine the regulations. You may direct 
questions regarding the applicability of this action to the person 
listed in FOR FURTHER INFORMATION CONTACT.

B. Public Participation

    NHTSA and EPA request comment on all aspects of this joint proposed 
rule. This section describes how you can participate in this process.

How do I prepare and submit comments?

    In this joint proposal, there are many issues common to both EPA's 
and NHTSA's proposals. For the convenience of all parties, comments 
submitted to the EPA docket will be considered comments submitted to 
the NHTSA docket, and vice versa. An exception is that comments 
submitted to the NHTSA docket on NHTSA's Draft Environmental Impact 
Statement (EIS) will not be considered submitted to the EPA docket. 
Therefore, the public only needs to submit comments to either one of 
the two agency dockets, although they may submit comments to both if 
they so choose. Comments that are submitted for consideration by one 
agency should be identified as such, and comments that are submitted 
for consideration by both agencies should be identified as such. Absent 
such identification, each agency will exercise its best judgment to 
determine whether a comment is submitted on its proposal.
    Further instructions for submitting comments to either the EPA or 
NHTSA docket are described below.
    EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2010-0799. 
EPA's policy is that all comments received will be included in the 
public docket without change and may be made available online at http://www.regulations.gov, including any personal information provided, 
unless

[[Page 74856]]

the comment includes information claimed to be Confidential Business 
Information (CBI) or other information whose disclosure is restricted 
by statute. Do not submit information that you consider to be CBI or 
otherwise protected through http://www.regulations.gov or email. The 
http://www.regulations.gov Web site is an ``anonymous access'' system, 
which means EPA will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an email 
comment directly to EPA without going through http://www.regulations.gov your email address will be automatically captured 
and included as part of the comment that is placed in the public docket 
and made available on the Internet. If you submit an electronic 
comment, EPA recommends that you include your name and other contact 
information in the body of your comment and with any disk or CD-ROM you 
submit. If EPA cannot read your comment due to technical difficulties 
and cannot contact you for clarification, EPA may not be able to 
consider your comment. Electronic files should avoid the use of special 
characters, any form of encryption, and be free of any defects or 
viruses. For additional information about EPA's public docket visit the 
EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.
    NHTSA: Your comments must be written and in English. To ensure that 
your comments are correctly filed in the Docket, please include the 
Docket number NHTSA-2010-0131 in your comments. Your comments must not 
be more than 15 pages long.\3\ NHTSA established this limit to 
encourage you to write your primary comments in a concise fashion. 
However, you may attach necessary additional documents to your 
comments, and there is no limit on the length of the attachments. If 
you are submitting comments electronically as a PDF (Adobe) file, we 
ask that the documents submitted be scanned using the Optical Character 
Recognition (OCR) process, thus allowing the agencies to search and 
copy certain portions of your submissions.\4\ Please note that pursuant 
to the Data Quality Act, in order for the substantive data to be relied 
upon and used by the agency, it must meet the information quality 
standards set forth in the OMB and Department of Transportation (DOT) 
Data Quality Act guidelines. Accordingly, we encourage you to consult 
the guidelines in preparing your comments. OMB's guidelines may be 
accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html. 
DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.
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    \3\ See 49 CFR 553.21.
    \4\ Optical character recognition (OCR) is the process of 
converting an image of text, such as a scanned paper document or 
electronic fax file, into computer-editable text.
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Tips for Preparing Your Comments

    When submitting comments, please remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Explain why you agree or disagree, suggest alternatives, 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.
     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
     Make sure to submit your comments by the comment period 
deadline identified in the DATES section above.

How can I be sure that my comments were received?

    NHTSA: If you submit your comments by mail and wish Docket 
Management to notify you upon its receipt of your comments, enclose a 
self-addressed, stamped postcard in the envelope containing your 
comments. Upon receiving your comments, Docket Management will return 
the postcard by mail.

How do I submit confidential business information?

    Any confidential business information (CBI) submitted to one of the 
agencies will also be available to the other agency. However, as with 
all public comments, any CBI information only needs to be submitted to 
either one of the agencies' dockets and it will be available to the 
other. Following are specific instructions for submitting CBI to either 
agency.
    EPA: Do not submit CBI to EPA through http://www.regulations.gov or 
email. Clearly mark the part or all of the information that you claim 
to be CBI. For CBI information in a disk or CD ROM that you mail to 
EPA, mark the outside of the disk or CD ROM as CBI and then identify 
electronically within the disk or CD ROM the specific information that 
is claimed as CBI. In addition to one complete version of the comment 
that includes information claimed as CBI, a copy of the comment that 
does not contain the information claimed as CBI must be submitted for 
inclusion in the public docket. Information so marked will not be 
disclosed except in accordance with procedures set forth in 40 CFR Part 
2.
    NHTSA: If you wish to submit any information under a claim of 
confidentiality, you should submit three copies of your complete 
submission, including the information you claim to be confidential 
business information, to the Chief Counsel, NHTSA, at the address given 
above under FOR FURTHER INFORMATION CONTACT. When you send a comment 
containing confidential business information, you should include a 
cover letter setting forth the information specified in our 
confidential business information regulation.\5\
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    \5\ See 49 CFR part 512.
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    In addition, you should submit a copy from which you have deleted 
the claimed confidential business information to the Docket by one of 
the methods set forth above.

Will the agencies consider late comments?

    NHTSA and EPA will consider all comments received before the close 
of business on the comment closing date indicated above under DATES. To 
the extent practicable, we will also consider comments received after 
that date. If interested persons believe that any information that the 
agencies place in the docket after the issuance of the NPRM affects 
their comments, they may submit comments after the closing date 
concerning how the agencies should consider that information for the 
final rule. However, the agencies' ability to consider any such late 
comments in this rulemaking will be limited due to the time frame for 
issuing a final rule.
    If a comment is received too late for us to practicably consider in 
developing a final rule, we will consider that comment as an informal 
suggestion for future rulemaking action.

How can I read the comments submitted by other people?

    You may read the materials placed in the docket for this document 
(e.g., the comments submitted in response to this document by other 
interested persons) at any time by going to http://www.regulations.gov. 
Follow the online instructions for accessing the dockets. You may also 
read the materials at the EPA Docket Center or NHTSA Docket

[[Page 74857]]

Management Facility by going to the street addresses given above under 
ADDRESSES.

How do I participate in the public hearings?

    NHTSA and EPA will jointly host three public hearings on the dates 
and locations described in the DATES section above. At all hearings, 
both agencies will accept comments on the rulemaking, and NHTSA will 
also accept comments on the EIS.
    If you would like to present testimony at the public hearings, we 
ask that you notify the EPA and NHTSA contact persons listed under FOR 
FURTHER INFORMATION CONTACT at least ten days before the hearing. Once 
EPA and NHTSA learn how many people have registered to speak at the 
public hearing, we will allocate an appropriate amount of time to each 
participant, allowing time for lunch and necessary breaks throughout 
the day. For planning purposes, each speaker should anticipate speaking 
for approximately ten minutes, although we may need to adjust the time 
for each speaker if there is a large turnout. We suggest that you bring 
copies of your statement or other material for the EPA and NHTSA 
panels. It would also be helpful if you send us a copy of your 
statement or other materials before the hearing. To accommodate as many 
speakers as possible, we prefer that speakers not use technological 
aids (e.g., audio-visuals, computer slideshows). However, if you plan 
to do so, you must notify the contact persons in the FOR FURTHER 
INFORMATION CONTACT section above. You also must make arrangements to 
provide your presentation or any other aids to NHTSA and EPA in advance 
of the hearing in order to facilitate set-up. In addition, we will 
reserve a block of time for anyone else in the audience who wants to 
give testimony. The agencies will assume that comments made at the 
hearings are directed to the NPRM unless commenters specifically 
reference NHTSA's EIS in oral or written testimony.
    The hearing will be held at a site accessible to individuals with 
disabilities. Individuals who require accommodations such as sign 
language interpreters should contact the persons listed under FOR 
FURTHER INFORMATION CONTACT section above no later than ten days before 
the date of the hearing.
    NHTSA and EPA will conduct the hearing informally, and technical 
rules of evidence will not apply. We will arrange for a written 
transcript of the hearing and keep the official record of the hearing 
open for 30 days to allow you to submit supplementary information. You 
may make arrangements for copies of the transcript directly with the 
court reporter.

Table of Contents

I. Overview of Joint EPA/NHTSA Proposed 2017-2025 National PROGRAM
    A. Introduction
    1. Continuation of the National Program
    2. Additional Background on the National Program
    3. California's Greenhouse Gas Program
    4. Stakeholder Engagement
    B. Summary of the Proposed 2017-2025 National Program
    1. Joint Analytical Approach
    2. Level of the Standards
    3. Form of the Standards
    4. Program Flexibilities for Achieving Compliance
    5. Mid-Term Evaluation
    6. Coordinated Compliance
    7. Additional Program Elements
    C. Summary of Costs and Benefits for the Proposed National 
Program
    1. Summary of Costs and Benefits for the Proposed NHTSA CAFE 
Standards
    2. Summary of Costs and Benefits for the Proposed EPA GHG 
Standards
    D. Background and Comparison of NHTSA and EPA Statutory 
Authority
    1. NHTSA Statutory Authority
    2. EPA Statutory Authority
    3. Comparing the Agencies' Authority
II. Joint Technical Work Completed for This Proposal
    A. Introduction
    B. Developing the Future Fleet for Assessing Costs, Benefits, 
and Effects
    1. Why Did the Agencies Establish a Baseline and Reference 
Vehicle Fleet?
    2. How Did the Agencies Develop the Baseline Vehicle Fleet?
    3. How Did the Agencies Develop the Projected MY 2017-2025 
Vehicle Reference Fleet?
    C. Development of Attribute-Based Curve Shapes
    1. Why are standards attribute-based and defined by a 
mathematical function?
    2. What attribute are the agencies proposing to use, and why?
    3. What mathematical functions have the agencies previously 
used, and why?
    4. How have the agencies changed the mathematical functions for 
the proposed MYs 2017-2025 standards, and why?
    5. What are the agencies proposing for the MYs 2017-2025 curves?
    6. Once the agencies determined the appropriate slope for the 
sloped part, how did the agencies determine the rest of the 
mathematical function?
    7. Once the agencies determined the complete mathematical 
function shape, how did the agencies adjust the curves to develop 
the proposed standards and regulatory alternatives?
    D. Joint Vehicle Technology Assumptions
    1. What Technologies did the Agencies Consider?
    2. How did the Agencies Determine the Costs of Each of these 
Technologies?
    3. How Did the Agencies Determine the Effectiveness of Each of 
these Technologies?
    E. Joint Economic and Other Assumptions
    F. Air Conditioning Efficiency CO2 Credits and Fuel 
Consumption Improvement Values, Off-cycle Reductions, and Full-size 
Pickup Trucks
    1. Proposed Air Conditioning CO2 Credits and Fuel 
Consumption Improvement Values
    2. Off-Cycle CO2 Credits
    3. Advanced Technology Incentives for Full Sized Pickup Trucks
    G. Safety Considerations in Establishing CAFE/GHG Standards
    1. Why do the agencies consider safety?
    2. How do the agencies consider safety?
    3. What is the current state of the research on statistical 
analysis of historical crash data?
    4. How do the agencies think technological solutions might 
affect the safety estimates indicated by the statistical analysis?
    5. How have the agencies estimated safety effects for the 
proposed standards?
III. EPA Proposal For MYS 2017-2025 Greenhouse Gas Vehicle Standards
    A. Overview of EPA Rule
    1. Introduction
    2. Why is EPA Proposing this Rule?
    3. What is EPA Proposing?
    4. Basis for the GHG Standards under Section 202(a)
    5. Other Related EPA Motor Vehicle Regulations
    B. Proposed Model Year 2017-2025 GHG Standards for Light-duty 
Vehicles, Light-duty Trucks, and Medium duty Passenger Vehicles
    1. What Fleet-wide Emissions Levels Correspond to the 
CO2 Standards?
    2. What Are the Proposed CO2 Attribute-based 
Standards?
    3. Mid-Term Evaluation
    4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    5. Small Volume Manufacturer Standards
    6. Nitrous Oxide, Methane, and CO2-equivalent 
Approaches
    7. Small Entity Exemption
    8. Additional Leadtime Issues
    9. Police and Emergency Vehicle Exemption From CO2 
Standards
    10. Test Procedures
    C. Additional Manufacturer Compliance Flexibilities
    1. Air Conditioning Related Credits
    2. Incentive for Electric Vehicles, Plug-in Hybrid Electric 
Vehicles, and Fuel Cell Vehicles
    3. Incentives for ``Game-Changing'' Technologies Including use 
of Hybridization and Other Advanced Technologies for Full-Size 
Pickup Trucks
    4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel 
Compressed Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles 
for GHG Emissions Compliance
    5. Off-cycle Technology Credits
    D. Technical Assessment of the Proposed CO2 Standards
    1. How did EPA develop a reference and control fleet for 
evaluating standards?
    2. What are the Effectiveness and Costs of CO2-
reducing technologies?

[[Page 74858]]

    3. How were technologies combined into ``packages'' and what is 
the cost and effectiveness of packages?
    4. How does EPA Project how a manufacturer would decide between 
options to improve CO2 performance to meet a fleet 
average standard?
    5. Projected Compliance Costs and Technology Penetrations
    6. How does the technical assessment support the proposed 
CO2 standards as compared to the alternatives has EPA 
considered?
    7. To what extent do any of today's vehicles meet or surpass the 
proposed MY 2017-2025 CO2 footprint-based targets with 
current powertrain designs?
    E. Certification, Compliance, and Enforcement
    1. Compliance Program Overview
    2. Compliance With Fleet-Average CO2 Standards
    3. Vehicle Certification
    4. Useful Life Compliance
    5. Credit Program Implementation
    6. Enforcement
    7. Other Certification Issues
    8. Warranty, Defect Reporting, and Other Emission-related 
Components Provisions
    9. Miscellaneous Technical Amendments and Corrections
    10. Base Tire Definition
    11. Treatment of Driver-Selectable Modes and Conditions
    F. How Would This Proposal Reduce GHG Emissions and Their 
Associated Effects?
    1. Impact on GHG Emissions
    2. Climate Change Impacts From GHG Emissions
    3. Changes in Global Climate Indicators Associated With the 
Proposal's GHG Emissions Reductions
    G. How would the proposal impact non-GHG emissions and their 
associated effects?
    1. Inventory
    2. Health Effects of Non-GHG Pollutants
    3. Environmental Effects of Non-GHG Pollutants
    4. Air Quality Impacts of Non-GHG Pollutants
    5. Other Unquantified Health and Environmental Effects
    H. What are the estimated cost, economic, and other impacts of 
the proposal?
    1. Conceptual Framework for Evaluating Consumer Impacts
    2. Costs Associated With the Vehicle Standards
    3. Cost per ton of Emissions Reduced
    4. Reduction in Fuel Consumption and its Impacts
    5. CO2 Emission Reduction Benefits
    6. Non-Greenhouse Gas Health and Environmental Impacts
    7. Energy Security Impacts
    8. Additional Impacts
    9. Summary of Costs and Benefits
    10. U.S. Vehicle Sales Impacts and Payback Period
    11. Employment Impacts
    I. Statutory and Executive Order Reviews
    J. Statutory Provisions and Legal Authority
IV. NHTSA Proposed Rule for Passenger car and Light Truck Cafe 
Standards for Model Years 2017-2025
    A. Executive Overview of NHTSA Proposed Rule
    1. Introduction
    2. Why does NHTSA set CAFE standards for passenger cars and 
light trucks?
    3. Why is NHTSA proposing CAFE standards for MYs 2017-2025 now?
    B. Background
    1. Chronology of events since the MY 2012-2016 final rule was 
issued
    2. How has NHTSA developed the proposed CAFE standards since the 
President's announcement?
    C. Development and Feasibility of the Proposed Standards
    1. How was the baseline vehicle fleet developed?
    2. How were the technology inputs developed?
    3. How did NHTSA develop its economic assumptions?
    4. How does NHTSA use the assumptions in its modeling analysis?
    D. Statutory Requirements
    1. EPCA, as Amended by EISA
    2. Administrative Procedure Act
    3. National Environmental Policy Act
    E. What are the proposed CAFE standards?
    1. Form of the Standards
    2. Passenger Car Standards for MYs 2017-2025
    3. Minimum Domestic Passenger Car Standards
    4. Light Truck Standards
    F. How do the proposed standards fulfill NHTSA's statutory 
obligations?
    1. What are NHTSA's statutory obligations?
    2. How did the agency balance the factors for this NPRM?
    G. Impacts of the Proposed CAFE Standards
    1. How will these standards improve fuel economy and reduce GHG 
emissions for MY 2017-2025 vehicles?
    2. How will these standards improve fleet-wide fuel economy and 
reduce GHG emissions beyond MY 2025?
    3. How will these proposed standards impact non-GHG emissions 
and their associated effects?
    4. What are the estimated costs and benefits of these proposed 
standards?
    5. How would these proposed standards impact vehicle sales?
    6. Social Benefits, Private Benefits, and Potential Unquantified 
Consumer Welfare Impacts of the Proposed Standards
    7. What other impacts (quantitative and unquantifiable) will 
these proposed standards have?
    H. Vehicle Classification
    I. Compliance and Enforcement
    1. Overview
    2. How does NHTSA determine compliance?
    3. What compliance flexibilities are available under the CAFE 
program and how do manufacturers use them?
    4. What new incentives are being added to the CAFE program for 
MYs 2017-2025?
    5. Other CAFE enforcement issues
    J. Regulatory notices and analyses
    1. Executive Order 12866, Executive Order 13563, and DOT 
Regulatory Policies and Procedures
    2. National Environmental Policy Act
    3. Regulatory Flexibility Act
    4. Executive Order 13132 (Federalism)
    5. Executive Order 12988 (Civil Justice Reform)
    6. Unfunded Mandates Reform Act
    7. Regulation Identifier Number
    8. Executive Order 13045
    9. National Technology Transfer and Advancement Act
    10. Executive Order 13211
    11. Department of Energy Review
    12. Plain Language
    13. Privacy Act

I. Overview of Joint EPA/NHTSA Proposed 2017-2025 National Program

Executive Summary

    EPA and NHTSA are each announcing proposed rules that call for 
strong and coordinated Federal greenhouse gas and fuel economy 
standards for passenger cars, light-duty trucks, and medium-duty 
passenger vehicles (hereafter light-duty vehicles or LDVs). Together, 
these vehicle categories, which include passenger cars, sport utility 
vehicles, crossover utility vehicles, minivans, and pickup trucks, 
among others, are presently responsible for approximately 60 percent of 
all U.S. transportation-related greenhouse gas (GHG) emissions and fuel 
consumption. This proposal would extend the National Program of Federal 
light-duty vehicle GHG emissions and corporate average fuel economy 
(CAFE) standards to model years (MYs) 2017-2025. This proposed 
coordinated program would achieve important reductions in GHG emissions 
and fuel consumption from the light-duty vehicle part of the 
transportation sector, based on technologies that either are 
commercially available or that the agencies project will be 
commercially available in the rulemaking timeframe and that can be 
incorporated at a reasonable cost. Higher initial vehicle costs will be 
more than offset by significant fuel savings for consumers over the 
lives of the vehicles covered by this rulemaking.
    This proposal builds on the success of the first phase of the 
National Program to regulate fuel economy and GHG emissions from U.S. 
light-duty vehicles, which established strong and coordinated standards 
for model years (MY) 2012-2016. As with the first phase of the National 
Program, collaboration with California Air Resources Board (CARB) and 
with automobile manufacturers and other stakeholders has been a key 
element in developing the agencies' proposed rules. Continuing the 
National Program would ensure that all manufacturers can build a single 
fleet of U.S. vehicles that would satisfy all requirements under both 
programs as well as under California's

[[Page 74859]]

program, helping to reduce costs and regulatory complexity while 
providing significant energy security and environmental benefits.
    Combined with the standards already in effect for MYs 2012-2016, as 
well as the MY 2011 CAFE standards, the proposed standards would result 
in MY 2025 light-duty vehicles with nearly double the fuel economy, and 
approximately one-half of the GHG emissions compared to MY 2010 
vehicles--representing the most significant federal action ever taken 
to reduce GHG emissions and improve fuel economy in the U.S. EPA is 
proposing standards that are projected to require, on an average 
industry fleet wide basis, 163 grams/mile of carbon dioxide 
(CO2) in model year 2025, which is equivalent to 54.5 mpg if 
this level were achieved solely through improvements in fuel 
efficiency.\6\ Consistent with its statutory authority, NHTSA is 
proposing passenger car and light truck standards for MYs 2017-2025 in 
two phases. The first phase, from MYs 2017-2021, includes proposed 
standards that are projected to require, on an average industry fleet 
wide basis, 40.9 mpg in MY 2021. The second phase of the CAFE program, 
from MYs 2022-2025, represents conditional \7\ proposed standards that 
are projected to require, on an average industry fleet wide basis, 49.6 
mpg in model year 2025. Both the EPA and NHTSA standards are projected 
to be achieved through a range of technologies, including improvements 
in air conditioning efficiency, which reduces both GHG emissions and 
fuel consumption; the EPA standards also are projected to be achieved 
with the use of air conditioning refrigerants with a lower global 
warming potential (GWP), which reduce GHGs (i.e., hydrofluorocarbons) 
but do not improve fuel economy. The agencies are proposing separate 
standards for passenger cars and trucks, based on a vehicle's size or 
``footprint.'' For the MYs 2022-2025 standards, EPA and NHTSA are 
proposing a comprehensive mid-term evaluation and agency decision-
making process, given both the long time frame and NHTSA's obligation 
to conduct a separate rulemaking in order to establish final standards 
for vehicles for those model years.
---------------------------------------------------------------------------

    \6\ Real-world CO2 is typically 25 percent higher and 
real-world fuel economy is typically 20 percent lower than the 
CO2 and CAFE compliance values discussed here. The 
reference to CO2 here refers to CO2 equivalent 
reductions, as this included some degree of reductions in greenhouse 
gases other than CO2, as one part of the air conditioning 
related reductions.
    \7\ By ``conditional,'' NHTSA means to say that the proposed 
standards for MYs 2022-2025 represent the agency's current best 
estimate of what levels of stringency would be maximum feasible in 
those model years, but in order for the standards for those model 
years to be legally binding a subsequent rulemaking must be 
undertaken by the agency at a later time. See Section IV for more 
information.
---------------------------------------------------------------------------

    From a societal standpoint, this second phase of the National 
Program is projected to save approximately 4 billion barrels of oil and 
2 billion metric tons of GHG emissions over the lifetimes of those 
vehicles sold in MY 2017-2025. The agencies estimate that fuel savings 
will far outweigh higher vehicle costs, and that the net benefits to 
society of the MYs 2017-2025 National Program will be in the range of 
$311 billion to $421 billion (7 and 3 percent discount rates, 
respectively) over the lifetimes of those vehicles sold in MY 2017-
2025.
    These proposed standards would have significant savings for 
consumers at the pump. Higher costs for new vehicle technology will 
add, on average, about $2000 for consumers who buy a new vehicle in MY 
2025. Those consumers who drive their MY 2025 vehicle for its entire 
lifetime will save, on average, $5200 to $6600 (7 and 3 percent 
discount rates, respectively) in fuel savings, for a net lifetime 
savings of $3000 to $4400. For those consumers who purchase their new 
MY 2025 vehicle with cash, the discounted fuel savings will offset the 
higher vehicle cost in less than 4 years, and fuel savings will 
continue for as long as the consumer owns the vehicle. Those consumers 
that buy a new vehicle with a typical 5-year loan will benefit from an 
average monthly cash flow savings of about $12 during the loan period, 
or about $140 per year, on average. So the consumer would benefit 
beginning at the time of purchase, since the increased monthly fuel 
savings would more than offset the higher monthly payment due to the 
higher incremental vehicle cost.
    The agencies have designed the proposed standards to preserve 
consumer choice--that is, the proposed standards should not affect 
consumers' opportunity to purchase the size of vehicle with the 
performance, utility and safety features that meets their needs. The 
standards are based on a vehicle's size, or footprint--that is, 
consistent with their general performance and utility needs, larger 
vehicles have numerically less stringent fuel economy/GHG emissions 
targets and smaller vehicles have more stringent fuel economy/GHG 
emissions targets, although since the standards are fleet average 
standards, no specific vehicle must meet a target. Thus, consumers will 
be able to continue to choose from the same mix of vehicles that are 
currently in the marketplace.
    The agencies' believe there is a wide range of technologies 
available for manufacturers to consider in reducing GHG emissions and 
improving fuel economy. The proposals allow for long-term planning by 
manufacturers and suppliers for the continued development and 
deployment across their fleets of fuel saving and emissions-reducing 
technologies. The agencies believe that advances in gasoline engines 
and transmissions will continue for the foreseeable future, and that 
there will be continual improvement in other technologies, including 
vehicle weight reduction, lower tire rolling resistance, improvements 
in vehicle aerodynamics, diesel engines, and more efficient vehicle 
accessories. The agencies also expect to see increased electrification 
of the fleet through the expanded production of stop/start, hybrid, 
plug-in hybrid and electric vehicles. Finally, the agencies expect that 
vehicle air conditioners will continue to improve by becoming more 
efficient and by increasing the use of alternative refrigerants. Many 
of these technologies are already available today, and manufacturers 
will be able to meet the standards through significant efficiency 
improvements in these technologies, as well as a significant 
penetration of these and other technologies across the fleet. Auto 
manufacturers may also introduce new technologies that we have not 
considered for this rulemaking analysis, which could make possible 
alternative, more cost-effective paths to compliance.

A. Introduction

1. Continuation of the National Program
    EPA and NHTSA are each announcing proposed rules that call for 
strong and coordinated Federal greenhouse gas and fuel economy 
standards for passenger cars, light-duty trucks, and medium-duty 
passenger vehicles (hereafter light-duty vehicles or LDVs). Together, 
these vehicle categories, which include passenger cars, sport utility 
vehicles, crossover utility vehicles, minivans, and pickup trucks, are 
presently responsible for approximately 60 percent of all U.S. 
transportation-related greenhouse gas emissions and fuel consumption. 
The proposal would extend the National Program of Federal light-duty 
vehicle greenhouse gas (GHG) emissions and corporate average fuel 
economy (CAFE) standards to model years (MYs) 2017-2025. The 
coordinated program being proposed would achieve important reductions 
of greenhouse gas (GHG) emissions and fuel consumption from the light-
duty vehicle part of the

[[Page 74860]]

transportation sector, based on technologies that either are 
commercially available or that the agencies project will be 
commercially available in the rulemaking timeframe and that can be 
incorporated at a reasonable cost.
    In working together to develop the next round of standards for MYs 
2017-2025, NHTSA and EPA are building on the success of the first phase 
of the National Program to regulate fuel economy and GHG emissions from 
U.S. light-duty vehicles, which established the strong and coordinated 
standards for model years (MY) 2012-2016. As for the MYs 2012-2016 
rulemaking, collaboration with California Air Resources Board (CARB) 
and with industry and other stakeholders has been a key element in 
developing the agencies' proposed rules. Continuing the National 
Program would ensure that all manufacturers can build a single fleet of 
U.S. vehicles that would satisfy all requirements under both programs 
as well as under California's program, helping to reduce costs and 
regulatory complexity while providing significant energy security and 
environmental benefits.
    The agencies have been developing the basis for these joint 
proposed standards almost since the conclusion of the rulemaking 
establishing the first phase of the National Program. After much 
research and deliberation by the agencies, along with CARB and other 
stakeholders, President Obama announced plans for these proposed rules 
on July 29, 2011 and NHTSA and EPA issued a Supplemental Notice of 
Intent (NOI) outlining the agencies' plans for proposing the MY 2017-
2025 standards and program.\8\ This July NOI built upon the extensive 
analysis conducted by the agencies over the past year, including an 
initial technical assessment report and NOI issued in September 2010, 
and a supplemental NOI issued in December 2010 (discussed further 
below). The State of California and thirteen auto manufacturers 
representing over 90 percent of U.S. vehicle sales provided letters of 
support for the program concurrent with the Supplemental NOI.\9\ The 
United Auto Workers (UAW) also supported the announcement,\10\ as well 
as many consumer and environmental groups. As envisioned in the 
Presidential announcement and Supplemental NOI, this proposal sets 
forth proposed MYs 2017-2025 standards as well as detailed supporting 
analysis for those standards and regulatory alternatives for public 
review and comment. The program that the agencies are proposing will 
spur the development of a new generation of clean cars and trucks 
through innovative technologies and manufacturing that will, in turn, 
spur economic growth and create high-quality domestic jobs, enhance our 
energy security, and improve our environment. Consistent with Executive 
Order 13563, this proposal was developed with early consultation with 
stakeholders, employs flexible regulatory approaches to reduce burdens, 
maintains freedom of choice for the public, and helps to harmonize 
federal and state regulations.
---------------------------------------------------------------------------

    \8\ 76 FR 48758 (August 9, 2011).
    \9\ Commitment letters are available at http://www.epa.gov/otaq/climate/regulations.htm and at http://www.nhtsa.gov/fuel-economy 
(last accessed Aug. 24, 2011).
    \10\ The UAW's support was expressed in a statement on July 29, 
2011, which can be found at http://www.uaw.org/articles/uaw-supports-administration-proposal-light-duty-vehicle-cafe-and-greenhouse-gas-emissions-r (last accessed September 19, 2011).
---------------------------------------------------------------------------

    As described below, NHTSA and EPA are proposing a continuation of 
the National Program that the agencies believe represents the 
appropriate levels of fuel economy and GHG emissions standards for 
model years 2017-2025, given the technologies that the agencies 
anticipate will be available for use on these vehicles and the 
agencies' understanding of the cost and manufacturers' ability to apply 
these technologies during that time frame, and consideration of other 
relevant factors. Under this joint rulemaking, EPA is proposing GHG 
emissions standards under the Clean Air Act (CAA), and NHTSA is 
proposing CAFE standards under EPCA, as amended by the Energy 
Independence and Security Act of 2007 (EISA). This joint rulemaking 
proposal reflects a carefully coordinated and harmonized approach to 
implementing these two statutes, in accordance with all substantive and 
procedural requirements imposed by law.\11\
---------------------------------------------------------------------------

    \11\ For NHTSA, this includes the requirements of the National 
Environmental Policy Act (NEPA).
---------------------------------------------------------------------------

    The proposed approach allows for long-term planning by 
manufacturers and suppliers for the continued development and 
deployment across their fleets of fuel saving and emissions-reducing 
technologies. NHTSA's and EPA's technology assessment indicates there 
is a wide range of technologies available for manufacturers to consider 
in reducing GHG emissions and improving fuel economy. The agencies 
believe that advances in gasoline engines and transmissions will 
continue for the foreseeable future, which is a view that is supported 
in the literature and amongst the vehicle manufacturers and 
suppliers.\12\ The agencies also believe that there will be continual 
improvement in other technologies including reductions in vehicle 
weight, lower tire rolling resistance, improvements in vehicle 
aerodynamics, diesel engines, and more efficient vehicle accessories. 
The agencies also expect to see increased electrification of the fleet 
through the expanded production of stop/start, hybrid, plug-in hybrid 
and electric vehicles.\13\ Finally, the agencies expect that vehicle 
air conditioners will continue to improve by becoming more efficient 
and by increasing the use of alternative refrigerants. Many of these 
technologies are already available today, and EPA's and NHTSA's 
assessments are that manufacturers will be able to meet the standards 
through significant efficiency improvements in these technologies as 
well as a significant penetration of these and other technologies 
across the fleet. We project that these potential compliance pathways 
for manufacturers will result in significant benefits to consumers and 
to society, as quantified below. Manufacturers may also introduce new 
technologies that we have not considered for this rulemaking analysis, 
which could make possible alternative, more cost-effective paths to 
compliance.
---------------------------------------------------------------------------

    \12\ There are a number of competing gasoline engine 
technologies, with one in particular that the agencies project will 
be common beyond 2016. This is the gasoline direct injection and 
downsized engines equipped with turbochargers and cooled exhaust gas 
recirculation, which has performance characteristics similar to that 
of larger, less efficient engines. Paired with these engines, the 
agencies project that advanced transmissions (such as automatic and 
dual clutch transmissions with eight forward speeds) and higher 
efficiency gearboxes will provide significant improvements. 
Transmissions with eight or more speeds can be found in the fleet 
today in very limited production, and while they are expected to 
penetrate further by 2016, we anticipate that by 2025 these will be 
the dominant transmissions in new vehicle sales.
    \13\ For example, while today less than three percent of annual 
vehicle sales are strong hybrids, plug-in hybrids and all electric 
vehicles, by 2025 we estimate these technologies could represent 
nearly 15 percent of new sales.
---------------------------------------------------------------------------

    As discussed further below, as with the standards for MYs 2012-
2016, the agencies believe that the proposed standards would continue 
to preserve consumer choice, that is, the proposed standards should not 
affect consumers' opportunity to purchase the size of vehicle that 
meets their needs. NHTSA and EPA are proposing to continue standards 
based on vehicle footprint, where smaller vehicles have relatively more 
stringent standards, and larger vehicles have less stringent standards, 
so there should not be a significant effect on the relative 
availability of different size vehicles in the fleet.

[[Page 74861]]

Additionally, as with the standards for MYs 2012-2016, the agencies 
believe that the proposed standards should not have a negative effect 
on vehicle safety, as it relates to vehicle footprint and mass as 
described in Section II.C and II.G below, respectively.
    We note that as part of this rulemaking, given the long time frame 
at issue in setting standards for MY 2022-2025 light-duty vehicles, the 
agencies are discussing a comprehensive mid-term evaluation and agency 
decision-making process. NHTSA has a statutory obligation to conduct a 
separate de novo rulemaking in order to establish final standards for 
vehicles for the 2022-2025 model years and would conduct the mid-term 
evaluation as part of that rulemaking, and EPA is proposing regulations 
that address the mid-term evaluation. The mid-term evaluation will 
assess the appropriateness of the MY 2022-2025 standards considered in 
this rulemaking, based on an updated assessment of all the factors 
considered in setting the standards and the impacts of those factors on 
the manufacturers' ability to comply. NHTSA and EPA fully expect to 
conduct this mid-term evaluation in coordination with the California 
Air Resources Board, given our interest in a maintaining a National 
Program to address GHGs and fuel economy. Further discussion of the 
mid-term evaluation is found later in this section, as well as in 
Sections III and IV.
    Based on the agencies' analysis, the National Program standards 
being proposed are currently projected to reduce GHGs by approximately 
2 billion metric tons and save 4 billion barrels of oil over the 
lifetime of MYs 2017-2025 vehicles relative to the MY 2016 standard 
curves \14\ already in place. The average cost for a MY 2025 vehicle to 
meet the standards is estimated to be about $2,000 compared to a 
vehicle that would meet the level of the MY 2016 standards in MY 2025. 
However, fuel savings for consumers are expected to more than offset 
the higher vehicle costs. The typical driver would save a total of 
$5,200 to $6,600 (7 percent and 3 percent discount rate, respectively) 
in fuel costs over the lifetime of a MY 2025 vehicle and, even after 
accounting for the higher vehicle cost, consumers would save a net 
$3,000 to $4,400 (7 percent and 3 percent discount rate, respectively) 
over the vehicle's lifetime. Further, consumers who buy new vehicles 
with cash would save enough in lower fuel costs after less than 4 years 
(at either 7 percent or 3 percent discount rate) of owning a MY 2025 
vehicle to offset the higher upfront vehicle costs, while consumers who 
buy with a 5-year loan would save more each month on fuel than the 
increased amount they would spend on the higher monthly loan payment, 
beginning in the first month of ownership.
---------------------------------------------------------------------------

    \14\ The calculation of GHG reductions and oil savings is 
relative to a future in which the MY 2016 standards remain in place 
for MYs 2017-2025 and manufacturers comply on average at those 
levels.
---------------------------------------------------------------------------

    Continuing the National Program has both energy security and 
climate change benefits. Climate change is widely viewed as a 
significant long-term threat to the global environment. EPA has found 
that elevated atmospheric concentrations of six greenhouse gases--
carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, 
perflurocarbons, and sulfur hexafluoride--taken in combination endanger 
both the public health and the public welfare of current and future 
generations. EPA further found that the combined emissions of these 
greenhouse gases from new motor vehicles and new motor vehicle engines 
contribute to the greenhouse gas air pollution that endangers public 
health and welfare. 74 FR 66496 (Dec. 15, 2009). As summarized in EPA's 
Endangerment and Cause or Contribute Findings under Section 202(a) of 
the Clear Air Act, anthropogenic emissions of GHGs are very likely (90 
to 99 percent probability) the cause of most of the observed global 
warming over the last 50 years.\15\ Mobile sources emitted 31 percent 
of all U.S. GHGs in 2007 (transportation sources, which do not include 
certain off-highway sources, account for 28 percent) and have been the 
fastest-growing source of U.S. GHGs since 1990.\16\ Mobile sources 
addressed in the endangerment and contribution findings under CAA 
section 202(a)--light-duty vehicles, heavy-duty trucks, buses, and 
motorcycles--accounted for 23 percent of all U.S. GHG in 2007.\17\ 
Light-duty vehicles emit CO2, methane, nitrous oxide, and 
hydrofluorocarbons and are responsible for nearly 60 percent of all 
mobile source GHGs and over 70 percent of Section 202(a) mobile source 
GHGs. For light-duty vehicles in 2007, CO2 emissions 
represent about 94 percent of all greenhouse emissions (including 
HFCs), and the CO2 emissions measured over the EPA tests 
used for fuel economy compliance represent about 90 percent of total 
light-duty vehicle GHG emissions.18 19
---------------------------------------------------------------------------

    \15\ 74 FR 66,496,-66,518, December 18, 2009; ``Technical 
Support Document for Endangerment and Cause or Contribute Findings 
for Greenhouse Gases Under Section 202(a) of the Clean Air Act'' 
Docket: EPA-HQ-OAR-2009-0472-11292, http://epa.gov/climatechange/endangerment.html.
    \16\ U.S. Environmental Protection Agency. 2009. Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-
004. Available at http://epa.gov/climatechange/emissions/downloads09/GHG2007entire_report-508.pdf.
    \17\ U.S. EPA. 2009 Technical Support Document for Endangerment 
and Cause or Contribute Findings for Greenhouse Gases under Section 
202(a) of the Clean Air Act. Washington, DC. pp. 180-194. Available 
at http://epa.gov/climatechange/endangerment/downloads/Endangerment%20TSD.pdf.
    \18\ U.S. Environmental Protection Agency. 2009. Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-
004. Available at http://epa.gov/climatechange/emissions/downloads09/GHG2007entire_report-508.pdf.
    \19\ U.S. Environmental Protection Agency. RIA, Chapter 2.
---------------------------------------------------------------------------

    Improving our energy and national security by reducing our 
dependence on foreign oil has been a national objective since the first 
oil price shocks in the 1970s. Net petroleum imports accounted for 
approximately 51 percent of U.S. petroleum consumption in 2009.\20\ 
World crude oil production is highly concentrated, exacerbating the 
risks of supply disruptions and price shocks as the recent unrest in 
North Africa and the Persian Gulf highlights. Recent tight global oil 
markets led to prices over $100 per barrel, with gasoline reaching as 
high as $4 per gallon in many parts of the U.S., causing financial 
hardship for many families and businesses. The export of U.S. assets 
for oil imports continues to be an important component of the 
historically unprecedented U.S. trade deficits. Transportation 
accounted for about 71 percent of U.S. petroleum consumption in 
2009.\21\ Light-duty vehicles account for about 60 percent of 
transportation oil use, which means that they alone account for about 
40 percent of all U.S. oil consumption.
---------------------------------------------------------------------------

    \20\ Energy Information Administration, ``How dependent are we 
on foreign oil?'' Available at http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm (last accessed August 28, 2011).
    \21\ Energy Information Administration, Annual Energy Outlook 
2011, ``Oil/Liquids.'' Available at http://www.eia.gov/forecasts/aeo/MT_liquidfuels.cfm (last accessed August 28, 2011).
---------------------------------------------------------------------------

    The automotive market is becoming increasingly global. The U.S. 
auto companies and U.S. suppliers produce and sell automobiles and 
automotive components around the world, and foreign auto companies 
produce and sell in the U.S. As a result, the industry has become 
increasingly competitive. Staying at the cutting edge of automotive 
technology while maintaining profitability and consumer acceptance has 
become increasingly important for the sustainability of auto companies. 
The proposed standards cover model years 2017-2025 for passenger cars 
and light-duty trucks sold in the United States. Many other countries 
and regions around the world have in place fuel economy or 
CO2

[[Page 74862]]

emission standards for light-duty vehicles. In addition, the European 
Union is currently discussing more stringent CO2 standards 
for 2020, and the Japanese government has recently issued a draft 
proposal for new fuel efficiency standards for 2020. The overall trend 
is clear--globally many of the major economic countries are increasing 
the stringency of their fuel economy or CO2 emission 
standards for light-duty vehicles. When considering this common trend, 
the proposed CAFE and CO2 standards for MY 2017-2025 may 
offer some advantages for U.S.-based automotive companies and 
suppliers. In order to comply with the proposed standards, U.S. firms 
will need to invest significant research and development dollars and 
capital in order to develop and produce the technologies needed to 
reduce CO2 emissions and improve fuel economy. Companies 
have limited budgets for research and development programs. As 
automakers seek greater commonality across the vehicles they produce 
for the domestic and foreign markets, improving fuel economy and 
reducing GHGs in U.S. vehicles should have spillovers to foreign 
production, and vice versa, thus yielding the ability to amortize 
investment in research and production over a broader product and 
geographic spectrum. To the extent that the technologies needed to meet 
the standards contained in this proposal can also be used to comply 
with the fuel economy and CO2 standards in other countries, 
this can help U.S. firms in the global automotive market, as the U.S. 
firms will be able to focus their available research and development 
funds on a common set of technologies that can be used both 
domestically as well as internationally.
2. Additional Background on the National Program
    Following the successful adoption of a National Program of federal 
standards for greenhouse gas emissions (GHG) and fuel economy standards 
for model years (MY) 2012-2016 light duty vehicles, President Obama 
issued a Memorandum on May 21, 2010 requesting that the National 
Highway Traffic Safety Administration (NHTSA), on behalf of the 
Department of Transportation, and the Environmental Protection Agency 
(EPA) work together to develop a national program for model years 2017-
2025. Specifically, he requested that the agencies develop ``* * * a 
coordinated national program under the CAA [Clean Air Act] and the EISA 
[Energy Independence and Security Act of 2007] to improve fuel 
efficiency and to reduce greenhouse gas emissions of passenger cars and 
light-duty trucks of model years 2017-2025.'' \22\ The President 
recognized that our country could take a leadership role in addressing 
the global challenges of improving energy security and reducing 
greenhouse gas pollution, stating that ``America has the opportunity to 
lead the world in the development of a new generation of clean cars and 
trucks through innovative technologies and manufacturing that will spur 
economic growth and create high-quality domestic jobs, enhance our 
energy security, and improve our environment.''
---------------------------------------------------------------------------

    \22\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards. For the reader's reference, the 
President also requested the Administrators of EPA and NHTSA to 
issue joint rules under the CAA and EISA to establish fuel 
efficiency and greenhouse gas emissions standards for commercial 
medium-and heavy-duty on-highway vehicles and work trucks beginning 
with the 2014 model year. The agencies recently promulgated final 
GHG and fuel efficiency standards for heavy duty vehicles and 
engines for MYs 2014-2018. 76 FR 57106 (September 15, 2011).
---------------------------------------------------------------------------

    The Presidential Memorandum stated ``The program should also seek 
to achieve substantial annual progress in reducing transportation 
sector greenhouse gas emissions and fossil fuel consumption, consistent 
with my Administration's overall energy and climate security goals, 
through the increased domestic production and use of existing, 
advanced, and emerging technologies, and should strengthen the industry 
and enhance job creation in the United States.'' Among other things, 
the agencies were tasked with researching and then developing standards 
for MYs 2017 through 2025 that would be appropriate and consistent with 
EPA's and NHTSA's respective statutory authorities, in order to 
continue to guide the automotive sector along the road to reducing its 
fuel consumption and GHG emissions, thereby ensuring corresponding 
energy security and environmental benefits. During the public comment 
period for the MY 2012-2016 proposed rulemaking, many stakeholders, 
including automakers, encouraged NHTSA and EPA to begin working toward 
standards for MY 2017 and beyond in order to maintain a single 
nationwide program. Several major automobile manufacturers and CARB 
sent letters to EPA and NHTSA in support of a MYs 2017 to 2025 
rulemaking initiative as outlined in the President's May 21, 2010 
announcement.\23\
---------------------------------------------------------------------------

    \23\ These letters of support in response to the May 21, 2010 
Presidential Memorandum are available at http://www.epa.gov/otaq/climate/regulations.htm#prez and http://www.nhtsa.gov/Laws+&+Regulations/CAFE+-+Fuel+Economy/Stakeholder+Commitment+Letters (last accessed August 28, 2011).
---------------------------------------------------------------------------

    The President's memo requested that the agencies, ``work with the 
State of California to develop by September 1, 2010, a technical 
assessment to inform the rulemaking process * * *.'' As a first step in 
responding to the President's request, the agencies collaborated with 
CARB to prepare an Interim Joint Technical Assessment Report (TAR) to 
inform the rulemaking process and provide an initial technical 
assessment for that work. NHTSA, EPA, and CARB issued the joint 
Technical Assessment Report consistent with Section 2(a) of the 
Presidential Memorandum.\24\ In developing the technical assessment, 
EPA, NHTSA, and CARB held numerous meetings with a wide variety of 
stakeholders including the automobile original equipment manufacturers 
(OEMs), automotive suppliers, non-governmental organizations, states 
and local governments, infrastructure providers, and labor unions. The 
Interim Joint TAR provided an overview of key stakeholder input, 
addressed other topics noted in the Presidential memorandum, and EPA's 
and NHTSA's initial assessment of benefits and costs of a range of 
stringencies of future standards.
---------------------------------------------------------------------------

    \24\ This Interim Joint Technical Assessment Report (TAR) is 
available at http://www.epa.gov/otaq/climate/regulations/ldv-ghg-tar.pdf and http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/2017+CAFE-GHG_Interim_TAR2.pdf.Section 2(a) of the Presidential 
Memorandum requested that EPA and NHTSA ``Work with the State of 
California to develop by September 1, 2010, a technical assessment 
to inform the rulemaking process, reflecting input from an array of 
stakeholders on relevant factors, including viable technologies, 
costs, benefits, lead time to develop and deploy new and emerging 
technologies, incentives and other flexibilities to encourage 
development and deployment of new and emerging technologies, impacts 
on jobs and the automotive manufacturing base in the United States, 
and infrastructure for advanced vehicle technologies.''
---------------------------------------------------------------------------

    In accordance with the Presidential Memorandum, NHTSA and EPA also 
issued a joint Notice of Intent to Issue a Proposed Rulemaking 
(NOI).\25\ The September 2010 NOI highlighted the results of the 
analyses contained in the Interim Joint TAR, provided an overview of 
key program design elements, and announced plans for initiating the 
joint rulemaking to improve the fuel efficiency and reduce the GHG 
emissions of passenger cars and light-duty trucks built in MYs 2017-
2025. The agencies requested comments on the September NOI and 
accompanying Interim Joint TAR.
---------------------------------------------------------------------------

    \25\ 75 FR 62739, October 13, 2010.
---------------------------------------------------------------------------

    The Interim Joint TAR contained an initial fleet-wide analysis of 
improvements in overall average GHG emissions and equivalent fuel 
economy

[[Page 74863]]

levels. For purposes of an initial assessment, this range was intended 
to represent a reasonably broad range of stringency increases for 
potential future GHG emissions standards, and was also consistent with 
the increases suggested by CARB in its letter of commitment in response 
to the President's memorandum.26 27 The TAR evaluated a 
range of potential stringency scenarios through model year 2025, 
representing a 3, 4, 5, and 6 percent per year estimated decrease in 
GHG levels from a model year 2016 fleet-wide average of 250 gram/mile 
(g/mi). Thus, the model year 2025 scenarios analyzed in the Interim 
Joint TAR ranged from 190 g/mi on an estimated fleet-wide average 
(calculated to be equivalent to 47 miles per gallon, mpg, if all 
improvements were made with fuel economy-improving technologies) under 
the 3 percent per year reduction scenario, to 143 g/mi on an estimated 
fleet-wide average (calculated to be equivalent to 62 mpg, if all 
improvements were made with fuel economy-improving technologies) under 
the 6 percent per year scenario.\28\ For each of these scenarios, the 
TAR also evaluated four pre-defined ``technological pathways'' by which 
these levels could be attained. These pathways were meant to represent 
ways that the industry as a whole could increase fuel economy and 
reduce greenhouse gas emissions, and did not represent ways that 
individual manufacturers would be required to or necessarily would 
employ in responding to future standards. Each defined technology 
pathway emphasized a different mix of advanced technologies, by 
assuming various degrees of penetration of advanced gasoline 
technologies, mass reduction, hybrid electric vehicles (HEVs), plug-in 
hybrids (PHEVs), and electric vehicles (EVs).
---------------------------------------------------------------------------

    \26\ 75 FR at 62744-45.
    \27\ Statement of the California Air Resources Board Regarding 
Future Passenger Vehicle Greenhouse Gas Emissions Standards, 
California Air Resources Board, May 21, 2010. Available at: http://www.epa.gov/otaq/climate/regulations.htm.
    \28\ These levels correspond to on-road values of 37 to 50 mpg, 
respectively, recognizing that on-road fuel economy tends to be 
about 20 percent worse than calculated mpg values based on the CAFE 
test cycle. We note, however, that because these mpg values are 
translated from CO2e values that include reductions in 
hydrofluorocarbon (HFC) leakage due to use of advanced refrigerants 
and leakage improvements, therefore these numbers are not as 
representative of either CAFE test cycle or real-world mpg.
---------------------------------------------------------------------------

    Manufacturers and others commented extensively on the NOI and 
Interim Joint TAR on a variety of topics, including the stringency of 
the standards, program design elements, the effect of potential 
standards on vehicle safety, and the TAR's discussion of technology 
costs, effectiveness, and feasibility. In response, the agencies and 
CARB spent the next several months continuing to gather information 
from the industry and others in response to the agencies' initial 
analytical efforts. To aid the public's understanding of some of the 
key issues facing the agencies in developing the proposed rule, EPA and 
NHTSA also issued a follow-on Supplemental NOI in November 2010.\29\ 
The Supplemental NOI highlighted many of the key comments the agencies 
received in response to the September NOI and Interim Joint TAR, and 
summarized some of the key themes from the comments and the additional 
stakeholder meetings. We note, as highlighted in the November 
Supplemental NOI, that there continued to be widespread stakeholder 
support for continuing the National Program for improved fuel economy 
and greenhouse gas standards for model years 2017-2025. The November 
Supplemental NOI also provided an overview of many of the key technical 
analyses the agencies planned in support the proposed rule.
---------------------------------------------------------------------------

    \29\ 75 FR 76337, December 8, 2010.
---------------------------------------------------------------------------

    After issuing the November 2010 Supplemental NOI, EPA, NHTSA and 
CARB continued studies on technology cost and effectiveness and more 
in-depth and comprehensive analysis of the issues. In addition to this 
work, the agencies continued meeting with stakeholders, including with 
manufacturers, manufacturer organizations, automotive suppliers, a 
labor union, environmental groups, consumer interest groups, and 
investment organizations. As discussed above, on July 29, 2011 
President Obama announced plans for these proposed rules and NHTSA and 
EPA issued a Supplemental Notice of Intent (NOI) outlining the 
agencies' plans for proposing the MY 2017-2025 standards and program.
3. California's Greenhouse Gas Program
    In 2004, the California Air Resources Board (CARB) approved 
standards for new light-duty vehicles, regulating the emission of 
CO2 and other GHGs. Thirteen states and the District of 
Columbia, comprising approximately 40 percent of the light-duty vehicle 
market, adopted California's standards. On June 30, 2009, EPA granted 
California's request for a waiver of preemption under the CAA with 
respect to these standards.\30\ The granting of the waiver permits 
California and the other states to proceed with implementing the 
California emission standards for MYs 2009-2016. After EPA and NHTSA 
issued their MYs 2012-2016 standards, CARB revised its program such 
that compliance with the EPA greenhouse gas standards will be deemed to 
be compliance with California's GHG standards.\31\ This facilitates the 
National Program by allowing manufacturers to meet all of the standards 
with a single national fleet.
---------------------------------------------------------------------------

    \30\ 74 FR 32744 (July 8, 2009). See also Chamber of Commerce v. 
EPA, 642 F.3d 192 (DC Cir. 2011) (dismissing petitions for review 
challenging EPA's grant of the waiver).
    \31\ See ``California Exhaust Emission Standards and Test 
Procedures for 2001 and Subsequent Model Passenger Cars, Light-Duty 
Trucks, and Medium-Duty Vehicles as approved by OAL,'' March 29, 
2010. Available at http://www.arb.ca.gov/regact/2010/ghgpv10/oaltp.pdf (last accessed August 28, 2011).
---------------------------------------------------------------------------

    As requested by the President and in the interest of maximizing 
regulatory harmonization, NHTSA and EPA have worked closely with CARB 
throughout the development of this proposal to develop a common 
technical basis. CARB is releasing a proposal for MY 2017-2025 GHG 
emissions standards which are consistent with the standards being 
proposed by EPA and NHTSA. CARB recognizes the benefit for the country 
of continuing the National Program and plans an approach similar to the 
one taken for MYs 2012-2016. CARB has committed to propose to revise 
its GHG emissions standards for MY 2017 and later such that compliance 
with EPA GHG emissions standards shall be deemed compliance with the 
California GHG emissions standards, as long as EPA's final GHG 
standards are substantially as described in the July 2011 Supplemental 
NOI.\32\
---------------------------------------------------------------------------

    \32\ See State of California July 28, 2011 letter available at: 
http://www.epa.gov/otaq/climate/regulations.htm.
---------------------------------------------------------------------------

4. Stakeholder Engagement
    On July 29, 2010, President Obama announced the support of thirteen 
major automakers to pursue the next phase in the Administration's 
national vehicle program, increasing fuel economy and reducing GHG 
emissions for passenger cars and light trucks built in MYs 2017-
2025.\33\ The President was joined by Ford, GM, Chrysler, BMW, Honda, 
Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and 
Volvo, which together account for over 90 percent of all vehicles sold 
in the United States. The California Air Resources Board (CARB), the 
United Auto Workers (UAW) and a number of

[[Page 74864]]

environmental and consumer groups, also announced their support.
---------------------------------------------------------------------------

    \33\ The President's remarks are available at http://www.whitehouse.gov/the-press-office/2011/07/29/remarks-president-fuel-efficiency-standards; see also http://www.nhtsa.gov/fuel-economy for more information from the agency about the announcement.
---------------------------------------------------------------------------

    On the same day as the President's announcement, the agencies 
released a second SNOI (published in the Federal Register on August 9, 
2011) generally describing the joint proposal that the EPA and NHTSA 
expected to issue to establish the National Program for model years 
2017-2025, and which is set forth in this NPRM. The agencies explained 
that the proposal would be developed based on extensive technical 
analyses, an examination of the factors required under their respective 
statutes and discussions with and input from individual motor vehicle 
manufacturers and other stakeholders. The input of stakeholders, which 
is encouraged by Executive Order 13563, has been invaluable to the 
agencies in developing today's NPRM.
    For background, as discussed above, after publishing the 
Supplemental NOI on December 8, 2010 (the December 8 SNOI), NHTSA, EPA 
and CARB continued studies and conducted more in-depth and 
comprehensive rulemaking analyses related to technology cost and 
effectiveness, technological feasibility, reasonable timing for 
manufacturers to implement technologies, and economic factors, and 
other relevant considerations. In addition to this ongoing and more in-
depth work, the agencies continued meeting with stakeholders and 
received additional input and feedback to help inform the rulemaking. 
Meetings were held with and relevant information was obtained from 
manufacturers, manufacturer organizations, suppliers, a labor union, 
environmental groups, consumer interest groups, and investment 
organizations.
    This section summarizes NHTSA and EPA stakeholder engagement 
between December 2010 and July 29, 2011, the date on which President 
Obama announced the agencies' plans for proposing standards for MY2017-
2025, and the support of thirteen major automakers and other 
stakeholders for these plans.\34\ Information that the agencies 
presented to stakeholders is posted in the docket and referenced in 
multiple places in this section.
---------------------------------------------------------------------------

    \34\ NHTSA has prepared a list of stakeholder meeting dates and 
participants, found in a memorandum to the docket, titled ``2017-
2025 CAFE Stakeholders Meetings List,'' at NHTSA-2010-0131.
---------------------------------------------------------------------------

    The agencies' engagement with the large and diverse group of 
stakeholders described above between December 2010 and July 29, 2011 
shared the single aim of ensuring that the agencies possessed the most 
complete and comprehensive set of information possible to inform the 
proposed rulemaking.
    Throughout this period, the stakeholders repeated many of the broad 
concerns and suggestions described in the TAR, NOI, and December 8 
SNOI. For example, stakeholders uniformly expressed interest in 
maintaining a harmonized and coordinated national program that would be 
supported by CARB and allow auto makers to build one fleet and preserve 
consumer choice. The stakeholders also raised concerns about potential 
stringency levels, consumer acceptance of some advanced technologies 
and the potential structure of compliance flexibilities available under 
EPCA (as amended by EISA) and the CAA. In addition, most of the 
stakeholders wanted to discuss issues concerning technology 
availability, cost and effectiveness and economic practicability. The 
auto manufacturers, in particular, sought to provide the agencies with 
a better understanding of their respective strategies (and associated 
costs) for improving fuel economy while satisfying consumer demand in 
the coming years. Additionally, some stakeholders expressed concern 
about potential safety impacts associated with the standards, consumer 
costs and consumer acceptance, and potential disparate treatment of 
cars and trucks. Some stakeholders also stressed the importance of 
investing in infrastructure to support more widespread deployment of 
alternative vehicles and fuels. Many stakeholders also asked the 
agencies to acknowledge prevailing economic uncertainties in developing 
proposed standards. In addition, many stakeholders discussed the number 
of years to be covered by the program and what they considered to be 
important features of a mid-term review of any standards set or 
proposed for MY 2022-2025. In all of these meetings, NHTSA and EPA 
sought additional data and information from the stakeholders that would 
allow them to refine their initial analyses and determine proposed 
standards that are consistent with the agencies' respective statutory 
and regulatory requirements. The general issues raised by those 
stakeholders are addressed in the sections of this NPRM discussing the 
topics to which the issues pertain (e.g., the form of the standards, 
technology cost and effectiveness, safety impacts, impact on U.S. 
vehicle sales and other economic considerations, costs and benefits).
    The first stage of the meetings occurred between December 2010 and 
June 20, 2011. These meetings covered topics that were generally 
similar to the meetings that were held prior to the publication of the 
December 8 Supplemental NOI and that were summarized in the 
Supplemental NOI. The manufacturers provided the agencies with 
additional information related to their product plans for vehicle 
models and fuel efficiency improving technologies and associated cost 
estimates. Detailed product plans generally extend only five or six 
model years into the future. Manufacturers also provided estimates of 
the amount of improvement in CAFE and CO2 emissions they 
could reasonably achieve in model MYs 2017-2025; feedback on the shape 
of MY 2012-2016 regulatory stringency curves and curve cut points, 
regulatory program flexibilities; recommendations for and on the 
structure of one or more mid-term reviews of the later model year 
standards; estimates of the cost, effectiveness and availability of 
some fuel efficiency improving technologies; and feedback on some of 
the cost and effectiveness assumptions used in the TAR analysis. In 
addition, manufacturers provided input on manufacturer experience with 
consumer acceptance of some advanced technologies and raised concerns 
over consumer acceptance if higher penetration of these technologies 
were needed in the future, consumer's willingness to pay for improved 
fuel economy, and ideas on enablers and incentives that would increase 
consumer acceptance. Many manufacturers stated that technology is 
available to significantly improve fuel economy and CO2 
emissions; however, they maintained that the biggest challenges relate 
to the cost of the technologies, consumer willingness to pay and 
consumer acceptance.
    During this first phase NHTSA and EPA continued to meet with other 
stakeholders, who provided their own perspectives on issues of 
importance to them. They also provided data to the extent available to 
them. Information obtained from stakeholders during this phase is 
contained in the docket.
    The second stage of meetings occurred between June 21, 2011 and 
July 14, 2011, during which time EPA, NHTSA, CARB and several White 
House Offices kicked-off an intensive series of meetings, primarily 
with manufacturers, to share tentative regulatory concepts developed by 
EPA, NHTSA and CARB, which included concept stringency curves and 
program flexibilities based on the analyses completed by the agencies 
as of June 21,\35\ and requested

[[Page 74865]]

feedback.\36\ In particular, the agencies requested that the 
manufacturers provide detailed and reliable information on how they 
might comply with the concepts and, if they projected they could not 
comply, information supporting their belief that they would be unable 
to comply. Additionally, EPA and NHTSA sought detailed input from the 
manufacturers regarding potential changes to the concept stringency 
levels and program flexibilities available under EPA's and NHTSA's 
respective authority that might facilitate compliance. In addition, 
manufacturers provided input related to consumer acceptance and 
adoption of some advanced technologies and program costs based on their 
independent assessments or information previously submitted to the 
agencies.
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    \35\ The agencies consider a range of standards that may satisfy 
applicable legal criteria, taking into account the complete record 
before them . The initial concepts shared with stakeholders were 
within the range the agencies were considering, based on the 
information then available to the agencies.
    \36\ ``Agency Materials Provided to Manufacturers'' Memo to 
docket NHTSA-2010-0131.
---------------------------------------------------------------------------

    In these second stage meetings, the agencies received considerable 
input from the manufacturers. The agencies carefully considered the 
manufacturer information along with information from the agencies' 
independent analyses. The agencies used all available information to 
refine their assessment of the range of program concept stringencies 
and provisions that the agencies determined were consistent with their 
statutory mandates.
    The third stage of meetings occurred between July 15, 2011 and July 
28, 2011. During this time period the agencies continued to refine 
concept stringencies and compliance flexibilities based on further 
consideration of the information available to them. They also met with 
approximately 13 manufacturers who expressed ongoing interest in 
engaging with the agencies.\37\
---------------------------------------------------------------------------

    \37\ ``Agency Materials Provided to Manufacturers'' Memo to 
docket NHTSA-2010-0131.
---------------------------------------------------------------------------

    Throughout all three stages, EPA and NHTSA continued to engage 
other stakeholders to ensure that the agencies were obtaining the most 
comprehensive and reliable information possible to guide the agencies 
in developing proposed standards for MY 2017-2025. Many of these 
stakeholders reiterated comments previously presented to the agencies. 
For instance, environmental organizations consistently stated that 
stringent standards are technically achievable and critical to 
important national interests, such as improving energy independence, 
reducing climate change, and enabling the domestic automobile industry 
to remain competitive in the global market. Labor interests stressed 
the need to carefully consider economic impacts and the opportunity to 
create and support new jobs, and consumer advocates emphasized the 
economic and practical benefits to consumers of improved fuel economy 
and the need to preserve consumer choice. In addition, a number of 
stakeholders stated that the standards under development should not 
have an adverse impact on safety.
    On July 29, 2011, EPA and NHTSA the agencies issued a new SNOI with 
concept stringency curves and program provisions based on refined 
analyses and further consideration of the record before the agencies. 
The agencies have received letters of support for the concepts laid out 
in the SNOI from BMW, Chrysler, Ford, General Motors, Global 
Automakers, Honda, Hyundai, Jaguar Land Rover, Kia, Mazda, Mitsubishi, 
Nissan, Toyota, Volvo and CARB. Numerous other stakeholders, including 
labor, environmental and consumer groups, have expressed their support 
for the agencies' plans to move forward.
    The agencies have considered all of this stakeholder input in 
developing this proposal, and look forward to continuing the productive 
dialogue through the comment period following this proposal.

B. Summary of the Proposed 2017-2025 National Program

1. Joint Analytical Approach
    This proposed rulemaking continues the collaborative analytical 
effort between NHTSA and EPA, which began with the MYs 2012-2016 
rulemaking. NHTSA and EPA have worked together, and in close 
coordination with CARB, on nearly every aspect of the technical 
analysis supporting these joint proposed rules. The results of this 
collaboration are reflected in the elements of the respective NHTSA and 
EPA proposed rules, as well as in the analytical work contained in the 
Draft Joint NHTSA and EPA Technical Support Document (Joint TSD). The 
agencies have continued to develop and refine supporting analyses since 
issuing the NOI and Interim Joint TAR last September. The Joint TSD, in 
particular, describes important details of the analytical work that are 
common, as well as highlighting any key differences in approach. The 
joint analyses include the build-up of the baseline and reference 
fleets, the derivation of the shape of the footprint-based attribute 
curves that define the agencies' respective standards, a detailed 
description of the estimated costs and effectiveness of the 
technologies that are available to vehicle manufacturers, the economic 
inputs used to calculate the costs and benefits of the proposed rules, 
a description of air conditioner and other off-cycle technologies, and 
the agencies' assessment of the effects of the proposed standards on 
vehicle safety. This comprehensive joint analytical approach has 
provided a sound and consistent technical basis for both agencies in 
developing their proposed standards, which are summarized in the 
sections below.
2. Level of the Standards
    EPA and NHTSA are each proposing two separate sets of standards, 
each under its respective statutory authorities. Both the proposed 
CO2 and CAFE standards for passenger cars and light trucks 
would be footprint-based, similar to the standards currently in effect 
through model year 2016, and would become more stringent on average in 
each model year from 2017 through 2025. The basis for measuring 
performance relative to standards would continue to be based 
predominantly on the EPA city and highway test cycles (2-cycle test). 
However, EPA is proposing optional air conditioning and off-cycle 
credits for the GHG program and adjustments to calculated fuel economy 
for the CAFE programs that would be based on test procedures other than 
the 2-cycle tests.
    EPA is proposing standards that are projected to require, on an 
average industry fleet wide basis, 163 grams/mile of CO2 in 
model year 2025. This is projected to be achieved through improvements 
in fuel efficiency with some additional reductions achieved through 
reductions in non-CO2 GHG emissions from reduced AC system 
leakage and the use of lower global warming potential (GWP) 
refrigerants. The level of 163 grams/mile CO2 would be 
equivalent on a mpg basis to 54.5 mpg, if this level was achieved 
solely through improvements in fuel efficiency.\38\
---------------------------------------------------------------------------

    \38\ Real-world CO2 is typically 25 percent higher 
and real-world fuel economy is typically 20 percent lower than the 
CO2 and CAFE values discussed here. The reference to CO2 
here refers to CO2 equivalent reductions, as this 
included some degree of reductions in greenhouse gases other than 
CO2, as one part of the AC related reductions.
---------------------------------------------------------------------------

    For passenger cars, the CO2 compliance values associated 
with the footprint curves would be reduced on average by 5 percent per 
year from the model year 2016 projected passenger car industry-wide 
compliance level through model year 2025. In recognition of 
manufacturers' unique challenges in improving the fuel economy and GHG 
emissions of full-size pickup trucks as we transition from the MY 2016

[[Page 74866]]

standards to MY 2017 and later, while preserving the utility (e.g., 
towing and payload capabilities) of those vehicles, EPA is proposing a 
lower annual rate of improvement for light-duty trucks in the early 
years of the program. For light-duty trucks, the proposed average 
annual rate of CO2 emissions reduction in model years 2017 
through 2021 is 3.5 percent per year. EPA is also proposing to change 
the slopes of the CO2-footprint curves for light-duty trucks 
from those in the 2012-2016 rule, in a manner that effectively means 
that the annual rate of improvement for smaller light-duty trucks in 
model years 2017 through 2021 would be higher than 3.5 percent, and the 
annual rate of improvement for larger light-duty trucks over the same 
time period would be lower than 3.5 percent. For model years 2022 
through 2025, EPA is proposing an average annual rate of CO2 
emissions reduction for light-duty trucks of 5 percent per year.
    NHTSA is proposing two phases of passenger car and light truck 
standards in this NPRM. The first phase runs from MYs 2017-2021, with 
proposed standards that are projected to require, on an average 
industry fleet wide basis, 40.9 mpg in MY 2021. For passenger cars, the 
annual increase in the stringency of the target curves between model 
years 2017 to 2021 is expected to average 4.1 percent. In recognition 
of manufacturers' unique challenges in improving the fuel economy and 
GHG emissions of full-size pickup trucks as we transition from the MY 
2016 standards to MY 2017 and later, while preserving the utility 
(e.g., towing and payload capabilities) of those vehicles, NHTSA is 
also proposing a slower annual rate of improvement for light trucks in 
the first phase of the program. For light trucks, the proposed annual 
increase in the stringency of the target curves in model years 2017 
through 2021 would be 2.9 percent per year on average. NHTSA is 
proposing to change the slopes of the fuel economy footprint curves for 
light trucks from those in the MYs 2012-2016 final rule, which would 
effectively make the annual rate of improvement for smaller light 
trucks in MYs 2017-2021 higher than 2.9 percent, and the annual rate of 
improvement for larger light trucks over that time period lower than 
2.9 percent.
    The second phase of the CAFE program runs from MYs 2022-2025 and 
represents conditional \39\ proposed standards that are projected to 
require, on an average industry fleet wide basis, 49.6 mpg in model 
year 2025. For passenger cars, the annual increase in the stringency of 
the target curves between model years 2022 and 2025 is expected to 
average 4.3 percent, and for light trucks, the annual increase during 
those model years is expected to average 4.7 percent. For the first 
time, NHTSA is proposing to increase the stringency of standards by the 
amount (in mpg terms) that industry is expected to improve air 
conditioning system efficiency, and EPA is proposing, under EPCA, to 
allow manufacturers to include air conditioning system efficiency 
improvements in the calculation of fuel economy for CAFE compliance. 
NHTSA notes that the proposed rates of increase in stringency for CAFE 
standards are lower than EPA's proposed rates of increase in stringency 
for GHG standards. As in the MYs 2012-2016 rulemaking, this is for 
purposes of harmonization and in reflection of several statutory 
constraints in EPCA/EISA. As a primary example, NHTSA's proposed 
standards, unlike EPA's, do not reflect the inclusion of air 
conditioning system refrigerant and leakage improvements, but EPA's 
proposed standards would allow consideration of such A/C refrigerant 
improvements which reduce GHGs but do not affect fuel economy.
---------------------------------------------------------------------------

    \39\ By ''conditional,'' NHTSA means to say that the proposed 
standards for MYs 2022-2025 represent the agency's current best 
estimate of what levels of stringency would be maximum feasible in 
those model years, but in order for the standards for those model 
years to be legally reviewable a subsequent rulemaking must be 
undertaken by the agency at a later time. See Section IV for more 
information.
---------------------------------------------------------------------------

    As with the MYs 2012-2016 standards, NHTSA and EPA's proposed MYs 
2017-2025 passenger car and light truck standards are expressed as 
mathematical functions depending on vehicle footprint.\40\ Footprint is 
one measure of vehicle size, and is determined by multiplying the 
vehicle's wheelbase by the vehicle's average track width. The standards 
that must be met by each manufacturer's fleet would be determined by 
computing the production-weighted average of the targets applicable to 
each of the manufacturer's fleet of passenger cars and light 
trucks.\41\ Under these footprint-based standards, the average levels 
required of individual manufacturers will depend, as noted above, on 
the mix and volume of vehicles the manufacturer produces. The values in 
the tables below reflect the agencies' projection of the corresponding 
average fleet levels that will result from these attribute-based curves 
given the agencies' current assumptions about the mix of vehicles that 
will be sold in the model years covered by the proposed standards.
---------------------------------------------------------------------------

    \40\ NHTSA is required to set attribute-based CAFE standards for 
passenger cars and light trucks. 49 U.S.C. 32902(b)(3).
    \41\ For CAFE calculations, a harmonic average is used.
---------------------------------------------------------------------------

    As shown in Table I-1, NHTSA's fleet-wide required CAFE levels for 
passenger cars under the proposed standards are estimated to increase 
from 40.0 to 56.0 mpg between MY 2017 and MY 2025. Fleet-wide required 
CAFE levels for light trucks, in turn, are estimated to increase from 
29.4 to 40.3 mpg. For the reader's reference, Table I-1 also provides 
the estimated average fleet-wide required levels for the combined car 
and truck fleets, culminating in an estimated overall fleet average 
required CAFE level of 49.6 mpg in MY 2025. Considering these combined 
car and truck increases, the proposed standards together represent 
approximately a 4.0 percent annual rate of increase,\42\ on average, 
relative to the MY 2016 required CAFE levels.
---------------------------------------------------------------------------

    \42\ This estimated average percentage increase includes the 
effect of changes in standard stringency and changes in the forecast 
fleet sales mix.

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[[Page 74867]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.001

    The estimated average required mpg levels for cars and trucks under 
the proposed standards shown in Table I-1 above include the use of A/C 
efficiency improvements, as discussed above, but do not reflect a 
number of proposed flexibilities and credits that manufacturers could 
use for compliance that NHTSA cannot consider in establishing standards 
based on EPCA/EISA constraints. These flexibilities would cause the 
actual achieved fuel economy to be lower than the required levels in 
the table above. The flexibilities and credits that NHTSA cannot 
consider include the ability of manufacturers to pay civil penalties 
rather than achieving required CAFE levels, the ability to use FFV 
credits, the ability to count electric vehicles for compliance, the 
operation of plug-in hybrid electric vehicles on electricity for 
compliance prior to MY 2020, and the ability to transfer and carry-
forward credits. When accounting for these flexibilities and credits, 
NHTSA estimates that the proposed CAFE standards would lead to the 
following average achieved fuel economy levels, based on the 
projections of what each manufacturer's fleet will comprise in each 
year of the program: \43\
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    \43\ The proposed CAFE program includes incentives for full size 
pick-up trucks that have mild HEV or strong HEV systems, and for 
full size pick-up trucks that have fuel economy performance that is 
better than the target curve by more than proposed levels. To 
receive these incentives, manufacturers must produce vehicles with 
these technologies or performance levels at volumes that meet or 
exceed proposed penetration levels (percentage of full size pick-up 
truck volume). This incentive is described in detail in Section 
IV.1. The NHTSA estimates in Table I-2 do not account for the 
reduction in estimated average achieved fleet-wide CAFE fuel economy 
that would occur if manufacturers use this incentive. NHTSA has 
conducted a sensitivity study that estimates the effects for 
manufacturers' potential use of this flexibility in Chapter X of the 
PRIA.

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[[Page 74868]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.002

    NHTSA is also required by EISA to set a minimum fuel economy 
standard for domestically manufactured passenger cars in addition to 
the attribute-based passenger car standard. The minimum standard 
``shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent 
of the average fuel economy projected by the Secretary for the combined 
domestic and non-domestic passenger automobile fleets manufactured for 
sale in the United States by all manufacturers in the model year * * 
*,'' and applies to each manufacturer's fleet of domestically 
manufactured passenger cars (i.e., like the other CAFE standards, it 
represents a fleet average requirement, not a requirement for each 
individual vehicle within the fleet).
    Based on NHTSA's current market forecast, the agency's estimates of 
these proposed minimum standards for domestic passenger cars for MYs 
2017-2025 are presented below in Table I-3.
[GRAPHIC] [TIFF OMITTED] TP01DE11.003

    EPA is proposing GHG emissions standards, and Table I-4 provides 
estimates of the projected overall fleet-wide CO2 emission 
compliance target levels. The values reflected in Table I-4 are those 
that correspond to the manufacturers' projected CO2 
compliance target levels from the car and truck footprint curves, but 
do not account for EPA's projection of how manufactures will implement 
two of the proposed incentive programs (advanced technology vehicle 
multipliers, and hybrid and performance-based incentives for full-size 
pickup trucks). EPA's projection of fleet-wide emissions levels that do 
reflect these incentives is shown in Table I-5 below.
---------------------------------------------------------------------------

    \44\ The projected fleet compliance levels for 2016 are 
different for trucks and the fleet than were projected in the 2012-
2016 rule. Our assessment for this proposal is based on a predicted 
2016 truck value of 297 and a projected combined car and truck value 
of 252 g/mi. That is because the standards are footprint based and 
the fleet projections, hence the footprint distributions, change 
slightly with each update of our projections, as described below. In 
addition, the actual fleet compliance levels for any model year will 
not be known until the end of that model year based on actual 
vehicle sales.

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[[Page 74869]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.004

    As shown in Table I-4, projected fleet-wide CO2 emission 
compliance targets for cars increase in stringency from 213 to 144 g/mi 
between MY 2017 and MY 2025. Similarly, projected fleet-wide 
CO2 equivalent emission compliance targets for trucks 
increase in stringency from 295 to 203 g/mi. As shown, the overall 
fleet average CO2 level targets are projected to increase in 
stringency from 243 g/mi in MY 2017 to 163 g/mi in MY 2025, which is 
equivalent to 54.5 mpg if all reductions were made with fuel economy 
improvements.
    EPA anticipates that manufacturers would take advantage of proposed 
program credits and incentives, such as car/truck credit transfers, air 
conditioning credits, off-cycle credits, advanced technology vehicle 
multipliers, and hybrid and performance-based incentives for full size 
pick-up trucks. Two of these flexibility provisions--advanced 
technology vehicle multipliers and the full size pick-up hybrid/
performance incentives--are expected to have an impact on the fleet-
wide emissions levels that manufacturers will actually achieve. 
Therefore, Table I-5 shows EPA's projection of the achieved emission 
levels of the fleet for MY 2017 through 2025. The differences between 
the emissions levels shown in Tables I-4 and I-5 reflect the impact on 
stringency due to the advanced technology vehicle multipliers and the 
full size pick-up hybrid/performance incentives, but do not reflect 
car-truck trading, air conditioning credits, or off-cycle credits, 
because, while those credit provisions should help reduce 
manufacturers' costs of the program, EPA believes that they will result 
in real-world emission reductions that will not affect the achieved 
level of emission reductions. These estimates are more fully discussed 
in III.B
BILLING CODE 4910-59-P

[[Page 74870]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.005

    A more detailed description of how the agencies arrived at the year 
by year progression of the stringency of the proposed standards can be 
found in Sections III and IV of this preamble.
---------------------------------------------------------------------------

    \45\ Electric vehicles are assumed at 0 gram/mile in this 
analysis.
    \46\ The projected fleet compliance levels for 2016 are 
different for the fleet than were projected in the 2012-2016 rule. 
Our assessment for this proposal is based on a predicted 2016 truck 
value of 297 and a projected combined car and truck value of 252 g/
mi. That is because the standards are footprint based and the fleet 
projections, hence the footprint distributions, change slightly with 
each update of our projections, as described below. In addition, the 
actual fleet compliance levels for any model year will not be known 
until the end of that model year based on actual vehicle sales.
---------------------------------------------------------------------------

    Both agencies also considered other alternative standards as part 
of their respective Regulatory Impact Analyses that span a reasonable 
range of alternative stringencies both more and less stringent than the 
standards being proposed. EPA's and NHTSA's analyses of these 
regulatory alternatives (and explanation of why we are proposing the 
standards proposed and not the regulatory alternatives) are contained 
in Sections III and IV of this preamble, respectively, as well as in 
EPA's DRIA and NHTSA's PRIA.
3. Form of the Standards
    As noted, NHTSA and EPA are proposing to continue attribute-based 
standards for passenger cars and light trucks, as required by EISA and 
as allowed by the CAA, and continue to use vehicle footprint as the 
attribute. Footprint is defined as a vehicle's wheelbase multiplied by 
its track width--in other words, the area enclosed by the points at 
which the wheels meet the ground. NHTSA and EPA adopted an attribute-
based approach based on vehicle footprint for MYs 2012-2016 light-duty 
vehicle standards.\47\ The agencies continue to believe that footprint 
is the most appropriate attribute on which to base the proposed 
standards, as discussed later in this notice and in Chapter 2 of the 
Joint TSD.
---------------------------------------------------------------------------

    \47\ NHTSA also uses the footprint attribute in its Reformed 
CAFE program for light trucks for model years 2008-2011 and 
passenger car CAFE standards for MY 2011.
---------------------------------------------------------------------------

    Under the footprint-based standards, the curve defines a GHG or 
fuel economy performance target for each separate car or truck 
footprint. Using the curves, each manufacturer thus will have a GHG and 
CAFE average standard that is unique to each of its fleets, depending 
on the footprints and production volumes of the vehicle models produced 
by that manufacturer. A manufacturer will have separate footprint-based 
standards for cars and for trucks. The curves are mostly sloped, so 
that generally, larger vehicles (i.e., vehicles with larger footprints) 
will be subject to less stringent targets (i.e., higher CO2 
grams/mile targets and lower CAFE mpg targets) than smaller vehicles. 
This is because, generally speaking, smaller vehicles are more capable 
of achieving lower levels of CO2 and higher levels of fuel 
economy than larger vehicles. Although a manufacturer's fleet average 
standards could be estimated throughout the model year based on 
projected production volume of its vehicle fleet, the standards to 
which the manufacturer must comply will be based on its final model 
year production figures. A manufacturer's calculation of its fleet 
average standards as well as its fleets' average performance at the end 
of the model year will thus be based on the production-weighted average 
target and performance of each model in its fleet.\48\
---------------------------------------------------------------------------

    \48\ As in the MYs 2012-2016 rule, a manufacturer may have some 
models that exceed their target, and some that are below their 
target. Compliance with a fleet average standard is determined by 
comparing the fleet average standard (based on the sales weighted 
average of the target levels for each model) with fleet average 
performance (based on the sales weighted average of the performance 
for each model).
---------------------------------------------------------------------------

    While the concept is the same, the proposed curve shapes for MYs 
2017-2025 are somewhat different from the MYs 2012-2016 footprint 
curves. The passenger car curves are similar in shape to the car curves 
for MYs 2012-2016. However, the agencies are proposing more significant 
changes to the light trucks curves for MYs 2017-2025 compared to the 
light truck curves for MYs 2012-2016. The agencies are proposing 
changes to the light-truck curve to increase the slope and to

[[Page 74871]]

extend the large-footprint cutpoint over time to larger footprints, 
which we believe represent an appropriate balance of both technical and 
policy issues, as discussed in Section II.C below and Chapter 2 of the 
draft Joint TSD.
    NHTSA is proposing the attribute curves below for assigning a fuel 
economy target level to an individual car or truck's footprint value, 
for model years 2017 through 2025. These mpg values will be production 
weighted to determine each manufacturer's fleet average standard for 
cars and trucks. Although the general model of the target curve 
equation is the same for each vehicle category and each year, the 
parameters of the curve equation differ for cars and trucks. Each 
parameter also changes on a model year basis, resulting in the yearly 
increases in stringency. Figure I-1 below illustrates the passenger car 
CAFE standard curves for model years 2017 through 2025 while Figure I-2 
below illustrates the light truck CAFE standard curves for model years 
2017 through 2025.
    EPA is proposing the attribute curves shown in Figure I-3 and 
Figure I-4 below for assigning a CO2 target level to an 
individual vehicle's footprint value, for model years 2017 through 
2025. These CO2 values would be production weighted to 
determine each manufacturer's fleet average standard for cars and 
trucks. As with the CAFE curves, the general form of the equation is 
the same for each vehicle category and each year, but the parameters of 
the equation differ for cars and trucks. Again, each parameter also 
changes on a model year basis, resulting in the yearly increases in 
stringency. Figure I-3 below illustrates the CO2 car 
standard curves for model years 2017 through 2025 while Figure I-4 
shows the CO2 truck standard curves for model years 2017-
2025.
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[[Page 74872]]


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[[Page 74873]]


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[[Page 74874]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.009

BILLING CODE 4910-59-C
NHTSA and EPA are proposing to use the same vehicle category 
definitions for determining which vehicles are subject to the car curve 
standards versus the truck curve standards as were used for MYs 2012-
2016 standards. As in the MYs 2012-2016 rulemaking, a vehicle 
classified as a car under the NHTSA CAFE program will also be 
classified as a car under the EPA GHG program, and likewise for 
trucks.\49\ This approach of using CAFE definitions allows the 
CO2 standards and the CAFE standards to continue to be 
harmonized across all vehicles for the National Program.
---------------------------------------------------------------------------

    \49\ See 49 CFR 523 for NHTSA's definitions for passenger car 
and light truck under the CAFE program.
---------------------------------------------------------------------------

    As just explained, generally speaking, a smaller footprint vehicle 
will tend to have higher fuel economy and lower CO2 
emissions relative to a larger footprint vehicle when both have the 
same level of fuel efficiency improvement technology. Since the

[[Page 74875]]

proposed standards apply to a manufacturer's overall fleet, not to an 
individual vehicle, if a manufacturer's fleet is dominated by small 
footprint vehicles, then that fleet will have a higher fuel economy 
requirement and a lower CO2 requirement than a manufacturer 
whose fleet is dominated by large footprint vehicles. Compared to the 
non-attribute based CAFE standards in place prior to MY 2011, the 
proposed standards more evenly distribute the compliance burdens of the 
standards among different manufacturers, based on their respective 
product offerings. With this footprint-based standard approach, EPA and 
NHTSA continue to believe that the rules will not create significant 
incentives to produce vehicles of particular sizes, and thus there 
should be no significant effect on the relative availability of 
different vehicle sizes in the fleet due to the proposed standards, 
which will help to maintain consumer choice during the rulemaking 
timeframe. Consumers should still be able to purchase the size of 
vehicle that meets their needs. Table I-6 helps to illustrate the 
varying CO2 emissions and fuel economy targets under the 
proposed standards that different vehicle sizes will have, although we 
emphasize again that these targets are not actual standards--the 
proposed standards are manufacturer-specific, rather than vehicle-
specific.

[[Page 74876]]

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[[Page 74877]]


4. Program Flexibilities for Achieving Compliance
a. CO2/CAFE Credits Generated Based on Fleet Average Over-
Compliance
    The MYs 2012-2016 rules contain several provisions which provide 
flexibility to manufacturers in meeting standards, many of which the 
agencies are not proposing to change for MYs 2017 and later. For 
example, the agencies are proposing to continue allowing manufacturers 
to generate credits for over-compliance with the CO2 and 
CAFE standards.\50\ Under the agencies' footprint-based approach to the 
standards, a manufacturer's ultimate compliance obligations are 
determined at the end of each model year, when production of the model 
year is complete. Since the fleet average standards that apply to a 
manufacturer's car and truck fleets are based on the applicable 
footprint-based curves, a production volume-weighted fleet average 
requirement will be calculated for each averaging set (cars and trucks) 
based on the mix and volumes of the models manufactured for sale by the 
manufacturer. If a manufacturer's car and/or truck fleet achieves a 
fleet average CO2/CAFE level better than the car and/or 
truck standards, then the manufacturer generates credits. Conversely, 
if the fleet average CO2/CAFE level does not meet the 
standard, the fleet would incur debits (also referred to as a 
shortfall). As in the MY 2011 CAFE program under EPCA/EISA, and also in 
MYs 2012-2016 for the light-duty vehicle GHG and CAFE program, a 
manufacturer whose fleet generates credits in a given model year would 
have several options for using those credits, including credit carry-
back, credit carry-forward, credit transfers, and credit trading.
---------------------------------------------------------------------------

    \50\ This credit flexibility is required by EPCA/EISA, see 49 
U.S.C. 32903, and allowed by the CAA.
---------------------------------------------------------------------------

    Credit ``carry-back'' means that manufacturers are able to use 
credits to offset a deficit that had accrued in a prior model year, 
while credit ``carry-forward'' means that manufacturers can bank 
credits and use them toward compliance in future model years. EPCA, as 
amended by EISA, requires NHTSA to allow manufacturers to carry-back 
credits for up to three model years, and to carry-forward credits for 
up to five model years. EPA's MYs 2012-2016 light duty vehicle GHG 
program includes the same limitations and EPA is proposing to continue 
this limitation in the MY 2017-2025 program. To facilitate the 
transition to the increasingly more stringent standards, EPA is 
proposing under its CAA authority a one-time CO2 carry-
forward beyond 5 years, such that any credits generated from MY 2010 
through 2016 will be able to be used any time through MY 2021. This 
provision would not apply to early credits generated in MY 2009. 
NHTSA's program will continue the 5-year carry-forward and 3-year 
carry-back, as required by statute.
    Credit ``transfer'' means the ability of manufacturers to move 
credits from their passenger car fleet to their light truck fleet, or 
vice versa. EISA required NHTSA to establish by regulation a CAFE 
credits transferring program, now codified at 49 CFR part 536, to allow 
a manufacturer to transfer credits between its car and truck fleets to 
achieve compliance with the standards. For example, credits earned by 
over-compliance with a manufacturer's car fleet average standard could 
be used to offset debits incurred due to that manufacturer's not 
meeting the truck fleet average standard in a given year. However, EISA 
imposed a cap on the amount by which a manufacturer could raise its 
CAFE through transferred credits: 1 mpg for MYs 2011-2013; 1.5 mpg for 
MYs 2014-2017; and 2 mpg for MYs 2018 and beyond.\51\ Under section 
202(a) of the CAA, in contrast, there is no statutory limitation on 
car-truck credit transfers, and EPA's GHG program allows unlimited 
credit transfers across a manufacturer's car-truck fleet to meet the 
GHG standard. This is based on the expectation that this flexibility 
will facilitate setting appropriate GHG standards that manufacturers' 
can comply with in the lead time provided, and will allow the required 
GHG emissions reductions to be achieved in the most cost effective way. 
Therefore, EPA did not constrain the magnitude of allowable car-truck 
credit transfers,\52\ as doing so would reduce the flexibility for lead 
time, and would increase costs with no corresponding environmental 
benefit. EISA also prohibits the use of transferred credits to meet the 
minimum domestic passenger car fleet CAFE standard.\53\ These statutory 
limits will necessarily continue to apply to the determination of 
compliance with the CAFE standards.
---------------------------------------------------------------------------

    \51\ 49 U.S.C. 32903(g)(3).
    \52\ EPA's proposed program will continue to adjust car and 
truck credits by vehicle miles traveled (VMT), as in the MY 2012-
2016 program.
    \53\ 49 U.S.C. 32903(g)(4).
---------------------------------------------------------------------------

    Credit ``trading'' means the ability of manufacturers to sell 
credits to, or purchase credits from, one another. EISA allowed NHTSA 
to establish by regulation a CAFE credit trading program, also now 
codified at 49 CFR Part 536, to allow credits to be traded between 
vehicle manufacturers. EPA also allows credit trading in the light-duty 
vehicle GHG program. These sorts of exchanges between averaging sets 
are typically allowed under EPA's current mobile source emission credit 
programs (as well as EPA's and NHTSA's recently promulgated GHG and 
fuel efficiency standards for heavy-duty vehicles and engines). EISA 
also prohibits manufacturers from using traded credits to meet the 
minimum domestic passenger car CAFE standard.\54\
---------------------------------------------------------------------------

    \54\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

b. Air Conditioning Improvement Credits/Fuel Economy Value Increases
    Air conditioning (A/C) systems contribute to GHG emissions in two 
ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHGs, 
can leak from the A/C system (direct A/C emissions). In addition, 
operation of the A/C system places an additional load on the engine 
which increases fuel consumption and thus results in additional 
CO2 tailpipe emissions (indirect A/C related emissions). In 
the MYs 2012-2016 program, EPA allows manufacturers to generate credits 
by reducing either or both types of GHG emissions related to A/C 
systems. The expected generation of A/C credits is accounted for in 
setting the level of the overall CO2 standard. For the 
current proposal, as with the MYs 2012-2016 program, manufacturers will 
be able to generate CO2-equivalent credits to use in 
complying with the CO2 standards for improvements in air 
conditioning (A/C) systems, both for efficiency improvements (reduces 
tailpipe CO2 and improves fuel consumption) and for leakage 
reduction or alternative, lower GWP (global warming potential) 
refrigerant use (reduces hydrofluorocarbon (HFC) emissions). EPA is 
proposing that the maximum A/C credit available for cars is 18.8 grams/
mile CO2 and for trucks is 24.4 grams/mile CO2. 
The proposed test methods used to calculate these direct and indirect 
A/C credits are very similar to those of the MYs 2012-2016 program, 
though EPA is seeking comment on a revised idle test as well as a new 
test procedure.
    For the first time in the current proposal, the agencies are 
proposing provisions that would account for improvements in air 
conditioner efficiency in the CAFE program. Improving A/C efficiency 
leads to real-world fuel economy benefits, because as explained above, 
A/C operation

[[Page 74878]]

represents an additional load on the engine, so more efficient A/C 
operation imposes less of a load and allows the vehicle to go farther 
on a gallon of gas. Under EPCA, EPA has authority to adopt procedures 
to measure fuel economy and calculate CAFE. Under this authority EPA is 
proposing that manufacturers could generate fuel consumption 
improvement values for purposes of CAFE compliance based on air 
conditioning system efficiency improvements for cars and trucks. This 
increase in fuel economy would be allowed up to a maximum based on 
0.000563 gallon/mile for cars and 0.000810 gallon/mile for trucks. This 
is equivalent to the A/C efficiency CO2 credit allowed by 
EPA under the GHG program. The same methods would be used in the CAFE 
program to calculate the values for air conditioning efficiency 
improvements for cars and trucks as are used in EPA's GHG program. 
NHTSA is including in its proposed passenger car and light truck CAFE 
standards an increase in stringency in each model year from 2017-2025 
by the amount industry is expected to improve air conditioning system 
efficiency in those years, in a manner consistent with EPA's GHG 
standards. EPA is not proposing to allow generation of fuel consumption 
improvement values for CAFE purposes, nor is NHTSA proposing to 
increase stringency of the CAFE standard, for the use of A/C systems 
that reduce leakage or employ alternative, lower GWP refrigerant, 
because those changes do not improve fuel economy.
c. Off-cycle Credits/Fuel Economy Value Increases
    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate credits for employing new and innovative technologies that 
achieve CO2 reductions that are not reflected on current 
test procedures. EPA noted in the MYs 2012-2016 rulemaking that 
examples of such ``off-cycle'' technologies might include solar panels 
on hybrids, adaptive cruise control, and active aerodynamics, among 
other technologies. See generally 75 FR at 25438-39. EPA's current 
program allows off-cycle credits to be generated through MY 2016.
    EPA is proposing that manufacturers may continue to use off-cycle 
credits for MY 2017 and later for the GHG program. As with A/C 
efficiency, improving efficiency through the use of off-cycle 
technologies leads to real-world fuel economy benefits and allows the 
vehicle to go farther on a gallon of gas. Thus, under its EPCA 
authority EPA is proposing to allow manufacturers to generate fuel 
consumption improvement values for purposes of CAFE compliance based on 
the use of off-cycle technologies. Increases in fuel economy under the 
CAFE program based on off-cycle technology will be equivalent to the 
off-cycle credit allowed by EPA under the GHG program, and these 
amounts will be determined using the same procedures and test methods 
as are used in EPA's GHG program. For the reasons discussed in sections 
III and IV of this proposal, the ability to generate off-cycle credits 
and increases in fuel economy for use in compliance will not affect or 
change the level of the GHG or CAFE standards proposed by each agency.
    Many automakers indicated that they had a strong interest in 
pursuing off-cycle technologies, and encouraged the agencies to refine 
and simplify the evaluation process to provide more certainty as to the 
types of technologies the agencies would approve for credit generation. 
For 2017 and later, EPA is proposing to expand and streamline the MYs 
2012-2016 off-cycle credit provisions, including an approach by which 
the agencies would provide specified amounts of credit and fuel 
consumption improvement values for a subset of off-cycle technologies 
whose benefits are readily quantifiable. EPA is proposing a list of 
technologies and credit values, where sufficient data is available, 
that manufacturers could use without going through an advance approval 
process that would otherwise be required to generate credits. EPA 
believes that our assessment of off-cycle technologies and associated 
credit values on this proposed list is conservative, and automakers may 
apply for additional off-cycle credits beyond the minimum credit value 
if they have sufficient supporting data. Further, manufacturers may 
also apply for off-cycle technologies beyond those listed, again, if 
they have sufficient data.
    In addition, EPA is providing additional detail on the process and 
timing for the credit/fuel consumption improvement values application 
and approval process. EPA is proposing a timeline for the approval 
process, including a 60-day EPA decision process from the time a 
manufacturer submits a complete application. EPA is also proposing a 
detailed, common, step-by-step process, including a specification of 
the data that manufacturers must submit. For off-cycle technologies 
that are both not covered by the pre-approved off-cycle credit/fuel 
consumption improvement values list and that are not quantifiable based 
on the 5-cycle test cycle option provided in the 2012-2016 rulemaking, 
EPA is proposing to retain the public comment process from the MYs 
2012-2016 rule.
d. Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, 
and Fuel Cell Vehicles
    To facilitate market penetration of the most advanced vehicle 
technologies as rapidly as possible, EPA is proposing an incentive 
multiplier for compliance purposes for all electric vehicles (EVs), 
plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) 
sold in MYs 2017 through 2021. This multiplier approach means that each 
EV/PHEV/FCV would count as more than one vehicle in the manufacturer's 
compliance calculation. EPA is proposing that EVs and FCVs start with a 
multiplier value of 2.0 in MY 2017, phasing down to a value of 1.5 in 
MY 2021. PHEVs would start at a multiplier value of 1.6 in MY 2017 and 
phase down to a value of 1.3 in MY 2021.\55\ The multiplier would be 
1.0 for MYs 2022-2025.
---------------------------------------------------------------------------

    \55\ The multipliers for EV/FCV would be: 2017-2019--2.0, 2020--
1.75, 2021--1.5; for PHEV: 2017-2019--1.6, 2020--1.45, 2021--1.3.
---------------------------------------------------------------------------

    NHTSA currently interprets EPCA and EISA as precluding the agency 
from offering additional incentives for EVs, FCVs and PHEVs, except as 
specified by statute,\56\ and thus is not proposing incentive 
multipliers comparable to the EPA incentive multipliers described 
above.
---------------------------------------------------------------------------

    \56\ Because 49 U.S.C. 32904(a)(2)(B) expressly requires EPA to 
calculate the fuel economy of electric vehicles using the Petroleum 
Equivalency Factor developed by DOE, which contains an incentive for 
electric operation already, and because 49 U.S.C. 32905(a) expressly 
requires EPA to calculate the fuel economy of FCVs using a specified 
incentive, NHTSA believes that Congress' having provided clear 
incentives for these technologies in the CAFE program suggests that 
additional incentives beyond those would not be consistent with 
Congress' intent. Similarly, because the fuel economy of PHEVs' 
electric operation must also be calculated using DOE's PEF, the 
incentive for electric operation appears to already be inherent in 
the statutory structure.
---------------------------------------------------------------------------

    For EVs, PHEVs and FCVs, EPA is proposing to set a value of 0 g/
mile for the tailpipe compliance value for EVs, PHEVs (electricity 
usage) and FCVs for MY 2017-2021, with no limit on the quantity of 
vehicles eligible for 0 g/mi tailpipe emissions accounting. For MY 
2022-2025, EPA is proposing that 0 g/mi only be allowed up to a per-
company cumulative sales cap, tiered as follows: 1) 600,000 vehicles 
for companies that sell 300,000 EV/PHEV/FCVs in MYs 2019-2021; 2) 
200,000 vehicles for all other manufacturers. EPA believes the 
industry-wide impact of such a tiered cap will be approximately 2 
million vehicles. EPA

[[Page 74879]]

proposes to phase-in the change in compliance value, from 0 grams per 
mile to net upstream accounting, for any manufacturer that exceeds its 
cumulative production cap for EV/PHEV/FCVs. EPA proposes that, starting 
with MY 2022, the compliance value for EVs, FCVs, and the electric 
portion of PHEVs in excess of individual automaker cumulative 
production caps would be based on net upstream accounting.
    For EVs and other dedicated alternative fuel vehicles, EPA is 
proposing to calculate fuel economy for the CAFE program using the same 
methodology as in the MYs 2012-2016 rulemaking, which aligns with EPCA/
EISA statutory requirements. For liquid alternative fuels, this 
methodology generally counts 15 percent of the volume of fuel used in 
determine the mpg-equivalent fuel economy. For gaseous alternative 
fuels, the methodology generally determines a gasoline equivalent mpg 
based on the energy content of the gaseous fuel consumed, and then 
adjusts the fuel consumption by effectively only counting 15 percent of 
the actual energy consumed. For electricity, the methodology generally 
determines a gasoline equivalent mpg by measuring the electrical energy 
consumed, and then using a petroleum equivalency factor (PEF) to 
convert to an mpg-equivalent value. The PEF for electricity includes an 
adjustment that effectively only counts 15 percent of the actual energy 
consumed. Counting 15 percent of the volume or energy provides an 
incentive for alternative fuels in the CAFE program.
    The methodology that EPA is proposing for dual fueled vehicles 
under the GHG program and to calculate fuel economy for the CAFE 
program is discussed below in subsection I.B.7.a.
e. Incentives for ``Game Changing'' Technologies Performance for Full-
Size Pickup Truck Including Hybridization
    The agencies recognize that the standards under consideration for 
MYs 2017-2025 will be challenging for large trucks, including full size 
pickup trucks. In order to incentivize the penetration into the 
marketplace of ``game changing'' technologies for these pickups, 
including their hybridization, EPA is proposing a CO2 credit 
in the GHG program and an equivalent fuel consumption improvement value 
in the CAFE program for manufacturers that employ significant 
quantities of hybridization on full size pickup trucks, by including a 
per-vehicle CO2 credit and fuel consumption improvement 
value available for mild and strong hybrid electric vehicles (HEVs). 
EPA would provide the incentive for the GHG program under EPA's CAA 
authority and the incentive for the CAFE program under EPA's EPCA 
authority. EPA's GHG and NHTSA's CAFE proposed standards are set at 
levels that take into account this flexibility as an incentive for the 
introduction of advanced technology. This provides the opportunity to 
begin to transform the most challenging category of vehicles in terms 
of the penetration of advanced technologies, which, if successful at 
incentivizing these ``game changing technologies,'' should allow 
additional opportunities to successfully achieve the higher levels of 
truck stringencies in MYs 2022-2025.
    EPA is proposing that access to this credit and fuel consumption 
improvement value be conditioned on a minimum penetration of the 
technology in a manufacturer's full size pickup truck fleet, and is 
proposing criteria for a full size pickup truck (e.g., minimum bed size 
and minimum towing or payload capability). EPA is proposing that mild 
HEV pickup trucks would be eligible for a per vehicle credit of 10 g/mi 
\57\ during MYs 2017-2021 if the technology is used on a minimum 
percentage of a company's full size pickups, beginning with at least 
30% of a company's full size pickup production in 2017 and ramping up 
to at least 80% in MY 2021. Strong HEV pickup trucks would be eligible 
for a 20 g/mi per \58\ vehicle credit during MYs 2017-2025 if the 
technology is used on at least 10% of the company's full size pickups. 
These volume thresholds are being proposed in order to encourage rapid 
penetration of these technologies in this vehicle segment. EPA and 
NHTSA are proposing specific definitions of mild and strong HEV pickup 
trucks.
---------------------------------------------------------------------------

    \57\ 0.001125 gallon/mile.
    \58\ 0.00225 gallon/mile.
---------------------------------------------------------------------------

    Because there are other technologies besides mild and strong 
hybrids which can significantly reduce GHG emissions and fuel 
consumption in pickup trucks, EPA is also proposing a performance-based 
incentive CO2 emissions credit and equivalent fuel 
consumption improvement value for full size pickup trucks that achieve 
a significant CO2 reduction below/fuel economy improvement 
above the applicable target. This would be available for vehicles 
achieving significant CO2 reductions/fuel economy 
improvements through the use of technologies other than hybrid drive 
systems. EPA is proposing that eligible pickup trucks achieving 15 
percent below their applicable CO2 target would receive a 10 
g/mi credit, and those achieving 20 percent below their target would 
receive a 20 g/mi credit. The 10 g/mi performance-based credit would be 
available for MYs 2017 to 2021 and a vehicle meeting the requirements 
would receive the credit until MY 2021 unless its CO2 level 
increases. The 20 g/mi performance-based credit would be available for 
a maximum of 5 years within the model years of 2017 to 2025, provided 
the CO2 level does not increase for those vehicles earning 
the credit. The credits would begin in the model year of the eligible 
vehicle's introduction, and could not extend past MY 2021 for the 10 g/
mi credit and MY 2025 for the 20 g/mi credit.
    To avoid double-counting, the same vehicle would not receive credit 
under both the HEV and the performance based approaches.
5. Mid-Term Evaluation
    Given the long time frame at issue in setting standards for MYs 
2022-2025, and given NHTSA's obligation to conduct a separate 
rulemaking in order to establish final standards for vehicles for those 
model years, EPA and NHTSA are proposing a comprehensive mid-term 
evaluation and agency decision-making process. As part of this 
undertaking, both NHTSA and EPA will develop and compile up-to-date 
information for the evaluation, through a collaborative, robust and 
transparent process, including public notice and comment. The 
evaluation will be based on (1) a holistic assessment of all of the 
factors considered by the agencies in setting standards, including 
those set forth in the rule and other relevant factors, and (2) the 
expected impact of those factors on the manufacturers' ability to 
comply, without placing decisive weight on any particular factor or 
projection. The comprehensive evaluation process will lead to final 
agency action by both agencies.
    Consistent with the agencies' commitment to maintaining a single 
national framework for regulation of vehicle emissions and fuel 
economy, the agencies fully expect to conduct the mid-term evaluation 
in close coordination with the California Air Resources Board (CARB). 
Moreover, the agencies fully expect that any adjustments to the GHG 
standards will be made with the participation of CARB and in a manner 
that ensures continued harmonization of state and federal vehicle 
standards.
    Further discussion of the mid-term evaluation can be found in 
section III and IV of the proposal.

[[Page 74880]]

6. Coordinated Compliance
    The MYs 2012-2016 final rules established detailed and 
comprehensive regulatory provisions for compliance and enforcement 
under the GHG and CAFE programs. These provisions remain in place for 
model years beyond MY 2016 without additional action by the agencies 
and EPA and NHTSA are not proposing any significant modifications to 
them. In the MYs 2012-2016 final rule, NHTSA and EPA established a 
program that recognizes, and replicates as closely as possible, the 
compliance protocols associated with the existing CAA Tier 2 vehicle 
emission standards, and with earlier model year CAFE standards. The 
certification, testing, reporting, and associated compliance activities 
established for the GHG program closely track those in previously 
existing programs and are thus familiar to manufacturers. EPA already 
oversees testing, collects and processes test data, and performs 
calculations to determine compliance with both CAFE and CAA standards. 
Under this coordinated approach, the compliance mechanisms for both 
programs are consistent and non-duplicative. EPA also applies the CAA 
authorities applicable to its separate in-use requirements in this 
program.
    The compliance approach allows manufacturers to satisfy the GHG 
program requirements in the same general way they comply with 
previously existing applicable CAA and CAFE requirements. Manufacturers 
will demonstrate compliance on a fleet-average basis at the end of each 
model year, allowing model-level testing to continue throughout the 
year as is the current practice for CAFE determinations. The compliance 
program design includes a single set of manufacturer reporting 
requirements and relies on a single set of underlying data. This 
approach still allows each agency to assess compliance with its 
respective program under its respective statutory authority. The 
program also addresses EPA enforcement in cases of noncompliance.
7. Additional Program Elements
a. Treatment of Compressed Natural Gas (CNG), Plug-in Hybrid Electric 
Vehicles (PHEVs), and Flexible Fuel Vehicles (FFVs)
    EPA is proposing that CO2 compliance values for plug-in 
hybrid electric vehicles (PHEVs) and bi-fuel compressed natural gas 
(CNG) vehicles will be based on estimated use of the alternative fuels, 
recognizing that, once a consumer has paid several thousand dollars to 
be able to use a fuel that is considerably cheaper than gasoline, it is 
very likely that the consumer will seek to use the cheaper fuel as much 
as possible. Accordingly, for CO2 emissions compliance, EPA 
is proposing to use the Society of Automotive Engineers ``utility 
factor'' methodology (based on vehicle range on the alternative fuel 
and typical daily travel mileage) to determine the assumed percentage 
of operation on gasoline and percentage of operation on the alternative 
fuel for both PHEVs and bi-fuel CNG vehicles, along with the 
CO2 emissions test values on the alternative fuel and 
gasoline.
    EPA is proposing to account for E85 use by flexible fueled vehicles 
(FFVs) as in the existing MY 2016 and later program, based on actual 
usage of E85 which represents a real-world reduction attributed to 
alternative fuels. Unlike PHEV and bi-fuel CNG vehicles, there is not a 
significant cost differential between an FFV and a conventional 
gasoline vehicle and historically consumers have only fueled these 
vehicles with E85 a very small percentage of the time.
    In the CAFE program for MYs 2017-2019, the fuel economy of dual 
fuel vehicles will be determined in the same manner as specified in the 
MY 2012-2016 rule, and as defined by EISA. Beginning in MY 2020, EISA 
does not specify how to measure the fuel economy of dual fuel vehicles, 
and EPA is proposing under its EPCA authority to use the ``utility 
factor'' methodology for PHEV and CNG vehicles described above to 
determine how to proportion the fuel economy when operating on gasoline 
or diesel fuel and the fuel economy when operating on the alternative 
fuel. For FFVs, EPA is proposing to use the same methodology as it uses 
for the GHG program to determine how to proportion the fuel economy, 
which would be based on actual usage of E85. EPA is proposing to 
continue to use Petroleum Equivalency Factors and the 0.15 divisor used 
in the MY 2012-2016 rule for the alternative fuels, however with no cap 
on the amount of fuel economy increase allowed. This issue is discussed 
further in Section III.B.10.
b. Exclusion of Emergency and Police Vehicles
    Under EPCA, manufacturers are allowed to exclude emergency vehicles 
from their CAFE fleet \59\ and all manufacturers have historically done 
so. In the MYs 2012-2016 program, EPA's GHG program applies to these 
vehicles. However, after further consideration of this issue, EPA is 
proposing the same type of exclusion provision for these vehicles for 
MY 2012 and later because of the unique features of vehicles designed 
specifically for law enforcement and emergency purposes, which have the 
effect of raising their GHG emissions and calling into question the 
ability of manufacturers to sufficiently reduce the emissions from 
these vehicles without compromising necessary vehicle features or 
dropping vehicles from their fleets.
---------------------------------------------------------------------------

    \59\ 49 U.S.C. 32902(e).
---------------------------------------------------------------------------

c. Small Businesses and Small Volume Manufacturers
    EPA is proposing provisions to address two categories of smaller 
manufacturers. The first category is small businesses as defined by the 
Small Business Administration (SBA). For vehicle manufacturers, SBA's 
definition of small business is any firm with less than 1,000 
employees. As with the MYs 2012-2016 program, EPA is proposing to 
continue to exempt small businesses from the GHG standards, for any 
company that meets the SBA's definition of a small business. EPA 
believes this exemption is appropriate given the unique challenges 
small businesses would face in meeting the GHG standards, and since 
these businesses make up less than 0.1% of total U.S. vehicle sales, 
and there is no significant impact on emission reductions.
    EPA's proposal also addresses small volume manufacturers, with U.S. 
annual sales of less than 5,000 vehicles. Under the MYs 2012-2016 
program, these small volume manufacturers are eligible for an exemption 
from the CO2 standards. EPA is proposing to bring small 
volume manufacturers into the CO2 program for the first time 
starting in MY 2017, and allow them to petition EPA for alternative 
standards.
    EPCA provides NHTSA with the authority to exempt from the generally 
applicable CAFE standards manufacturers that produce fewer than 10,000 
passenger cars worldwide in the model year each of the two years prior 
to the year in which they seek an exemption.\60\ If NHTSA exempts a 
manufacturer, it must establish an alternate standard for that 
manufacturer for that model year, at the level that the agency decides 
is maximum feasible for that manufacturer. The exemption and 
alternative standard apply only if the exempted manufacturer also 
produces fewer than 10,000 passenger cars

[[Page 74881]]

worldwide in the year for which the exemption was granted.
---------------------------------------------------------------------------

    \60\ 49 U.S.C. 32902(d). Implementing regulations may be found 
in 49 CFR part 525.
---------------------------------------------------------------------------

    Further, the Temporary Lead-time Allowance Alternative Standards 
(TLAAS) provisions included in EPA's MYs 2012-2016 program for 
manufacturers with MY 2009 U.S. sales of less than 400,000 vehicles 
ends after MY 2015 for most eligible manufacturers.\61\ EPA is not 
proposing to extend or otherwise replace the TLAAS provisions for the 
proposed MYs 2017-2025 program. However, EPA is inviting comment on 
whether this or some other form of flexibility is warranted for lower 
volume, limited line manufacturers, as further discussed in Section 
III.B.8. With the exception of the small businesses and small volume 
manufacturers discussed above, the proposed MYs 2017-2025 standards 
would apply to all manufacturers.
---------------------------------------------------------------------------

    \61\ TLAAS ends after MY 2016 for manufacturers with MY 2009 
U.S. sales of less than 50,000 vehicles.
---------------------------------------------------------------------------

C. Summary of Costs and Benefits for the Proposed National Program

    This section summarizes the projected costs and benefits of the 
proposed CAFE and GHG emissions standards. These projections helped 
inform the agencies' choices among the alternatives considered and 
provide further confirmation that the proposed standards are 
appropriate under their respective statutory authorities. The costs and 
benefits projected by NHTSA to result from these CAFE standards are 
presented first, followed by those from EPA's analysis of the GHG 
emissions standards. The agencies recognize that there are 
uncertainties regarding the benefit and cost values presented in this 
proposal. Some benefits and costs are not quantified. The value of 
other benefits and costs could be too low or too high.
    For several reasons, the estimates for costs and benefits presented 
by NHTSA and EPA, while consistent, are not directly comparable, and 
thus should not be expected to be identical. Most important, NHTSA and 
EPA's standards would require slightly different fuel efficiency 
improvements. EPA's proposed GHG standard is more stringent in part due 
to its assumptions about manufacturers' use of air conditioning leakage 
credits, which result from reductions in air conditioning-related 
emissions of HFCs. NHTSA is proposing standards at levels of stringency 
that assume improvements in the efficiency of air conditioning systems, 
but that do not account for reductions in HFCs, which are not related 
to fuel economy or energy conservation. In addition, the CAFE and GHG 
standards offer somewhat different program flexibilities and 
provisions, and the agencies' analyses differ in their accounting for 
these flexibilities (examples include the treatment of EVs, dual-fueled 
vehicles, and civil penalties), primarily because NHTSA is statutorily 
prohibited from considering some flexibilities when establishing CAFE 
standards,\62\ while EPA is not. These differences contribute to 
differences in the agencies' respective estimates of costs and benefits 
resulting from the new standards. Nevertheless, it is important to note 
that NHTSA and EPA have harmonized the programs as much as possible, 
and this proposal to continue the National Program would result in 
significant cost and other advantages for the automobile industry by 
allowing them to manufacture one fleet of vehicles across the U.S., 
rather than comply with potentially multiple state standards that may 
occur in the absence of the National Program.
---------------------------------------------------------------------------

    \62\ See 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    In summary, the projected costs and benefits presented by NHTSA and 
EPA are not directly comparable, because the levels being proposed by 
EPA include air conditioning-related improvements in HFC reductions, 
and because of the projection by EPA of complete compliance with the 
proposed GHG standards, whereas NHTSA projects some manufacturers will 
pay civil penalties as part of their compliance strategy, as allowed by 
EPCA. It should also be expected that overall EPA's estimates of GHG 
reductions and fuel savings achieved by the proposed GHG standards will 
be slightly higher than those projected by NHTSA only for the CAFE 
standards because of the same reasons described above. For the same 
reasons, EPA's estimates of manufacturers' costs for complying with the 
proposed passenger car and light truck GHG standards are slightly 
higher than NHTSA's estimates for complying with the proposed CAFE 
standards.
1. Summary of Costs and Benefits for the Proposed NHTSA CAFE Standards
    In reading the following section, we note that tables are 
identified as reflecting ``estimated required'' values and ``estimated 
achieved'' values. When establishing standards, EPCA allows NHTSA to 
only consider the fuel economy of dual-fuel vehicles (for example, FFVs 
and PHEVs) when operating on gasoline, and prohibits NHTSA from 
considering the use of dedicated alternative fuel vehicle credits 
(including for example EVs), credit carry-forward and carry-back, and 
credit transfer and trading. NHTSA's primary analysis of costs, fuel 
savings, and related benefits from imposing higher CAFE standards does 
not include them. However, EPCA does not prohibit NHTSA from 
considering the fact that manufacturers may pay civil penalties rather 
than comply with CAFE standards, and NHTSA's primary analysis accounts 
for some manufacturers' tendency to do so. The primary analysis is 
generally identified in tables throughout this document by the term 
``estimated required CAFE levels.''
    To illustrate the effects of the flexibilities and technologies 
that NHTSA is prohibited from including in its primary analysis, NHTSA 
performed a supplemental analysis of these effects on benefits and 
costs of the proposed CAFE standards that helps to demonstrate the 
real-world impacts. As an example of one of the effects, including the 
use of FFV credits reduces estimated per-vehicle compliance costs of 
the program, but does not significantly change the projected fuel 
savings and CO2 reductions, because FFV credits reduce the 
fuel economy levels that manufacturers achieve not only under the 
proposed standards, but also under the baseline MY 2016 CAFE standards. 
As another example, including the operation of PHEV vehicles on both 
electricity and gasoline, and the expected use of EVs for compliance 
may raise the fuel economy levels that manufacturers achieve under the 
proposed standards. The supplemental analysis is generally identified 
in tables throughout this document by the term ``estimated achieved 
CAFE levels.''
    Thus, NHTSA's primary analysis shows the estimates the agency 
considered for purposes of establishing new CAFE standards, and its 
supplemental analysis including manufacturer use of flexibilities and 
advanced technologies currently reflects the agency's best estimate of 
the potential real-world effects of the proposed CAFE standards.
    Without accounting for the compliance flexibilities and advanced 
technologies that NHTSA is prohibited from considering when determining 
the maximum feasible level of new CAFE standards, since manufacturers' 
decisions to use those flexibilities and technologies are voluntary, 
NHTSA estimates that the required fuel economy increases would lead to 
fuel savings totaling 173 billion gallons throughout the lives of 
vehicles sold in MYs 2017-2025. At a 3 percent discount rate, the 
present value of the economic benefits resulting from those fuel

[[Page 74882]]

savings is $451 billion; at a 7 percent private discount rate, the 
present value of the economic benefits resulting from those fuel 
savings is $358 billion.
    The agency further estimates that these new CAFE standards would 
lead to corresponding reductions in CO2 emissions totaling 
1.8 billion metric tons during the lives of vehicles sold in MYs 2017-
2025. The present value of the economic benefits from avoiding those 
emissions is $49 billion, based on a global social cost of carbon value 
of $22 per metric ton (in 2010, and growing thereafter).\63\ It is 
important to note that NHTSA's CAFE standards and EPA's GHG standards 
will both be in effect, and each will lead to increases in average fuel 
economy and CO2 reductions. The two agencies standards 
together comprise the National Program, and this discussion of the 
costs and benefits of NHTSA's CAFE standards does not change the fact 
that both the CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program. All costs are in 2009 
dollars.
---------------------------------------------------------------------------

    \63\ NHTSA also estimated the benefits associated with three 
more estimates of a one ton GHG reduction in 2009 ($5, $36, and 
$67), which will likewise grow thereafter. See Section II for a more 
detailed discussion of the social cost of carbon.
    \64\ The ``Earlier'' column shows benefits that NHTSA forecasts 
manufacturers will implement in model years prior to 2017 that are 
in response to the proposed MY 2017-2025 standards. The CAFE model 
forecasts that manufactures will implement some technologies, and 
achieve benefits during vehicle redesigns that occur prior to MY 
2017 in order to comply with MY 2017 and later standards in a cost 
effective manner.
[GRAPHIC] [TIFF OMITTED] TP01DE11.011


[[Page 74883]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.012

    Considering manufacturers' ability to employ compliance 
flexibilities and advanced technologies for meeting the standards, 
NHTSA estimates the following for fuel savings and avoided 
CO2 emissions, assuming FFV credits

[[Page 74884]]

would be used toward both the baseline and final standards:
[GRAPHIC] [TIFF OMITTED] TP01DE11.013


[[Page 74885]]


NHTSA estimates that the fuel economy increases resulting from the 
proposed standards would produce other benefits both to drivers (e.g., 
reduced time spent refueling) and to the U.S. as a whole (e.g., 
reductions in the costs of petroleum imports beyond the direct savings 
from reduced oil purchases),\65\ as well as some disbenefits (e.g., 
increased traffic congestion) caused by drivers' tendency to travel 
more when the cost of driving declines (as it does when fuel economy 
increases). NHTSA has estimated the total monetary value to society of 
these benefits and disbenefits, and estimates that the proposed 
standards will produce significant net benefits to society. Using a 3 
percent discount rate, NHTSA estimates that the present value of these 
benefits would total more than $515 billion over the lives of the 
vehicles sold during MYs 2017-2025; using a 7 percent discount rate, 
more than $419 billion. More discussion regarding monetized benefits 
can be found in Section IV of this notice and in NHTSA's PRIA. Note 
that the benefit calculation in the following tables includes the 
benefits of reducing CO2 emissions,\66\ but not the benefits 
of reducing other GHG emissions.
---------------------------------------------------------------------------

    \65\ We note, of course, that reducing the amount of fuel 
purchased also reduces tax revenue for the Federal and state/local 
governments. NHTSA discusses this issue in more detail in Chapter 
VIII of the PRIA.
    \66\ CO2 benefits for purposes of these tables are 
calculated using the $22/ton SCC values. Note that the net present 
value of reduced GHG emissions is calculated differently from other 
benefits. The same discount rate used to discount the value of 
damages from future emissions (SCC at 5, 3, and 2.5 percent) is used 
to calculate net present value of SCC for internal consistency.

---------------------------------------------------------------------------

[[Page 74886]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.014

    Considering manufacturers' ability to employ compliance 
flexibilities and advanced technologies for meeting the standards, 
NHTSA estimates the present value of these benefits would be reduced as 
follows:

[[Page 74887]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.015

    NHTSA attributes most of these benefits (about $451 billion at a 3 
percent discount rate, or about $358 billion at a 7 percent discount 
rate, excluding consideration of compliance flexibilities and advanced 
technologies for meeting the standards) to reductions in fuel 
consumption, valuing fuel (for societal purposes) at the future pre-tax 
prices projected in the Energy Information Administration's (EIA) 
reference case forecast from the Annual Energy Outlook (AEO) 2011. 
NHTSA's PRIA accompanying this proposal

[[Page 74888]]

presents a detailed analysis of specific benefits of the rule.
[GRAPHIC] [TIFF OMITTED] TP01DE11.016

    NHTSA estimates that the increases in technology application 
necessary to achieve the projected improvements in fuel economy will 
entail considerable monetary outlays. The agency estimates that the 
incremental costs for achieving the proposed CAFE standards--that is, 
outlays by vehicle manufacturers over and above those required to 
comply with the MY 2016 CAFE standards--will total about $157 billion 
(i.e., during MYs 2017-2025).
[GRAPHIC] [TIFF OMITTED] TP01DE11.017

    However, NHTSA estimates that manufacturers employing compliance 
flexibilities and advanced technologies to meet the standards could 
significantly reduce these outlays:
[GRAPHIC] [TIFF OMITTED] TP01DE11.018


[[Page 74889]]


    NHTSA projects that manufacturers will recover most or all of these 
additional costs through higher selling prices for new cars and light 
trucks. To allow manufacturers to recover these increased outlays (and, 
to a much less extent, the civil penalties that some manufacturers are 
expected to pay for non-compliance), the agency estimates that the 
standards would lead to increase in average new vehicle prices ranging 
from $161 per vehicle in MY 2017 to $1876 per vehicle in MY 2025:
[GRAPHIC] [TIFF OMITTED] TP01DE11.019

    And as before, NHTSA estimates that manufacturers employing 
compliance flexibilities and advanced technologies to meet the 
standards could significantly reduce these increases.
[GRAPHIC] [TIFF OMITTED] TP01DE11.020

    NHTSA estimates, therefore, that the total benefits of these 
proposed CAFE standards will be more than 2.5 times the magnitude of 
the corresponding costs. As a consequence, the proposed CAFE standards 
would produce net benefits of $358 billion at a 3 percent discount rate 
(with compliance flexibilities, $355 billion), or $262 billion at a 7 
percent discount rate (with compliance flexibilities, $264 billion), 
over the useful lives of the vehicles sold during MYs 2017-2025.
2. Summary of Costs and Benefits for the Proposed EPA GHG Standards
    EPA has analyzed in detail the costs and benefits of the proposed 
GHG standards. Table I-17 shows EPA's estimated lifetime discounted 
cost, fuel savings, and benefits for all vehicles projected to be sold 
in model years 2017-2025. The benefits include impacts such as climate-
related economic benefits from reducing emissions of CO2 
(but not other GHGs), reductions in energy security externalities 
caused by U.S. petroleum consumption and imports, the value of certain 
health benefits, the value of additional driving attributed to the 
rebound effect, the value of reduced refueling time needed to fill up a 
more

[[Page 74890]]

fuel efficient vehicle. The analysis also includes economic impacts 
stemming from additional vehicle use, such as the economic damages 
caused by accidents, congestion and noise. Note that benefits depend on 
estimated values for the social cost of carbon (SCC), as described in 
Section III.H.
BLLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TP01DE11.021


[[Page 74891]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.022

BLLING CODE 4910-59-C
    Table I-18 shows EPA's estimated lifetime fuel savings and 
CO2 equivalent emission reductions for all vehicles sold in 
the model years 2017-2025. The values in Table I-18 are projected 
lifetime totals for each model year and are not discounted. As 
documented in EPA's draft RIA, the potential credit transfer between 
cars and trucks may change the distribution of the fuel savings and GHG 
emission impacts between cars and trucks. As discussed above with 
respect to NHTSA's CAFE standards, it is important to note that NHTSA's 
CAFE standards and EPA's GHG standards will both be in effect, and each 
will lead to increases in average fuel economy and reductions in 
CO2 emissions. The two agencies' standards together comprise 
the National Program, and this discussion of costs and benefits of 
EPA's proposed GHG standards does not change the fact that both the 
proposed CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program. In general though, in 
addition to the added GHG benefit of HFC reductions from the EPA 
program, the fuel savings benefit are also somewhat higher than that 
from CAFE, primarily because of the possibility of paying civil 
penalties in lieu of applying technology in NHTSA's program, which is 
required by EPCA.
BILLING CODE 4910-59-P

[[Page 74892]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.023

BILLING CODE 4910-59-C
    Table I-19 shows EPA's estimated lifetime discounted benefits for 
all vehicles sold in model years 2017-2025. Although EPA estimated the 
benefits

[[Page 74893]]

associated with four different values of a one ton GHG reduction ($5, 
$22 $36, $67 in CY 2010 and in 2009 dollars), for the purposes of this 
overview presentation of estimated benefits EPA is showing the benefits 
associated with one of these marginal values, $22 per ton of 
CO2, in 2009 dollars and 2010 emissions. Table I-19 presents 
benefits based on the $22 value. Section III.H presents the four 
marginal values used to estimate monetized benefits of GHG reductions 
and Section III.H presents the program benefits using each of the four 
marginal values, which represent only a partial accounting of total 
benefits due to omitted climate change impacts and other factors that 
are not readily monetized. The values in the table are discounted 
values for each model year of vehicles throughout their projected 
lifetimes. The benefits include all benefits considered by EPA such as 
GHG reductions, PM benefits, energy security and other externalities 
such as reduced refueling time and accidents, congestion and noise. The 
lifetime discounted benefits are shown for one of four different social 
cost of carbon (SCC) values considered by EPA. The values in Table I-19 
do not include costs associated with new technology required to meet 
the GHG standard and they do not include the fuel savings expected from 
that technology.

[[Page 74894]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.024

    Table I-20 shows EPA's estimated lifetime fuel savings, lifetime 
CO2 emission reductions, and the monetized net present 
values of those fuel savings and CO2 emission reductions. 
The fuel savings and CO2 emission reductions are projected 
lifetime values for all vehicles sold in the model years 2017-2025. The 
estimated fuel savings in billions of gallons and the GHG reductions in 
million metric tons of CO2 shown in Table I-20 are totals 
for the nine model years throughout their projected lifetime and are 
not discounted. The monetized values shown in Table I-20 are the summed 
values of the discounted monetized fuel savings and monetized 
CO2 reductions for the model years 2017-2025 vehicles 
throughout their lifetimes. The monetized values in Table I-20 reflect

[[Page 74895]]

both a 3 percent and a 7 percent discount rate as noted.
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TP01DE11.025

BILLING CODE 4910-59-C
    Table I-21 shows EPA's estimated incremental and total technology 
outlays for cars and trucks for each of the model years 2017-2025. The 
technology outlays shown in Table I-21 are for the industry as a whole 
and do not account for fuel savings associated with the program. Table 
I-22 shows EPA's estimated incremental cost increase of the average new 
vehicle for each model year 2017-2025. The values shown are incremental 
to a baseline vehicle and are not cumulative. In other words, the 
estimated increase for 2017 model year cars is $194 relative to a 2017 
model year car meeting the MY 2016 standards. The estimated increase

[[Page 74896]]

for a 2018 model year car is $353 relative to a 2018 model year car 
meeting the MY 2016 standards (not $194 plus $353).
[GRAPHIC] [TIFF OMITTED] TP01DE11.026

D. Background and Comparison of NHTSA and EPA Statutory Authority

    This section provides the agencies' respective statutory 
authorities under which CAFE and GHG standards are established.
1. NHTSA Statutory Authority
    NHTSA establishes CAFE standards for passenger cars and light 
trucks for each model year under EPCA, as amended by EISA. EPCA 
mandates a

[[Page 74897]]

motor vehicle fuel economy regulatory program to meet the various 
facets of the need to conserve energy, including the environmental and 
foreign policy implications of petroleum use by motor vehicles. EPCA 
allocates the responsibility for implementing the program between NHTSA 
and EPA as follows: NHTSA sets CAFE standards for passenger cars and 
light trucks; EPA establishes the procedures for testing, tests 
vehicles, collects and analyzes manufacturers' data, and calculates the 
individual and average fuel economy of each manufacturer's passenger 
cars and light trucks; and NHTSA enforces the standards based on EPA's 
calculations.
a. Standard Setting
    We have summarized below the most important aspects of standard 
setting under EPCA, as amended by EISA. For each future model year, 
EPCA requires that NHTSA establish separate passenger car and light 
truck standards at ``the maximum feasible average fuel economy level 
that it decides the manufacturers can achieve in that model year,'' 
based on the agency's consideration of four statutory factors: 
technological feasibility, economic practicability, the effect of other 
standards of the Government on fuel economy, and the need of the nation 
to conserve energy. EPCA does not define these terms or specify what 
weight to give each concern in balancing them; thus, NHTSA defines them 
and determines the appropriate weighting that leads to the maximum 
feasible standards given the circumstances in each CAFE standard 
rulemaking.\67\ For MYs 2011-2020, EPCA further requires that separate 
standards for passenger cars and for light trucks be set at levels high 
enough to ensure that the CAFE of the industry-wide combined fleet of 
new passenger cars and light trucks reaches at least 35 mpg not later 
than MY 2020. For model years after 2020, standards need simply be set 
at the maximum feasible level.
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    \67\ See Center for Biological Diversity v. NHTSA, 538 F.3d. 
1172, 1195 (9th Cir. 2008) (``The EPCA clearly requires the agency 
to consider these four factors, but it gives NHTSA discretion to 
decide how to balance the statutory factors--as long as NHTSA's 
balancing does not undermine the fundamental purpose of the EPCA: 
energy conservation.'').
---------------------------------------------------------------------------

    Because EPCA states that standards must be set for ``* * * 
automobiles manufactured by manufacturers,'' and because Congress 
provided specific direction on how small-volume manufacturers could 
obtain exemptions from the passenger car standards, NHTSA has long 
interpreted its authority as pertaining to setting standards for the 
industry as a whole. Prior to this NPRM, some manufacturers raised with 
NHTSA the possibility of NHTSA and EPA setting alternate standards for 
part of the industry that met certain (relatively low) sales volume 
criteria--specifically, that separate standards be set so that 
``intermediate-size,'' limited-line manufacturers do not have to meet 
the same levels of stringency that larger manufacturers have to meet 
until several years later. NHTSA seeks comment on whether or how EPCA, 
as amended by EISA, could be interpreted to allow such alternate 
standards for certain parts of the industry.
i. Factors That Must Be Considered in Deciding the Appropriate 
Stringency of CAFE Standards
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method 
of improving fuel economy can be available for commercial application 
in the model year for which a standard is being established. Thus, the 
agency is not limited in determining the level of new standards to 
technology that is already being commercially applied at the time of 
the rulemaking, a consideration which is particularly relevant for a 
rulemaking with a timeframe as long as the present one. For this 
rulemaking, NHTSA has considered all types of technologies that improve 
real-world fuel economy, including air-conditioner efficiency, due to 
EPA's proposal to allow generation of fuel consumption improvement 
values for CAFE purposes based on improvements to air-conditioner 
efficiency that improves fuel efficiency.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' \68\ 
The agency has explained in the past that this factor can be especially 
important during rulemakings in which the automobile industry is facing 
significantly adverse economic conditions (with corresponding risks to 
jobs). Consumer acceptability is also an element of economic 
practicability, one which is particularly difficult to gauge during 
times of uncertain fuel prices.\69\ In a rulemaking such as the present 
one, looking out into the more distant future, economic practicability 
is a way to consider the uncertainty surrounding future market 
conditions and consumer demand for fuel economy in addition to other 
vehicle attributes. In an attempt to ensure the economic practicability 
of attribute-based standards, NHTSA considers a variety of factors, 
including the annual rate at which manufacturers can increase the 
percentage of their fleet that employ a particular type of fuel-saving 
technology, the specific fleet mixes of different manufacturers, and 
assumptions about the cost of the standards to consumers and consumers' 
valuation of fuel economy, among other things.
---------------------------------------------------------------------------

    \68\ 67 FR 77015, 77021 (Dec. 16, 2002).
    \69\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d 
1322 (D.C. Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable); Public Citizen v. NHTSA, 848 F.2d 256 (Congress 
established broad guidelines in the fuel economy statute; agency's 
decision to set lower standard was a reasonable accommodation of 
conflicting policies).
---------------------------------------------------------------------------

    It is important to note, however, that the law does not preclude a 
CAFE standard that poses considerable challenges to any individual 
manufacturer. The Conference Report for EPCA, as enacted in 1975, makes 
clear, and the case law affirms, ``a determination of maximum feasible 
average fuel economy should not be keyed to the single manufacturer 
which might have the most difficulty achieving a given level of average 
fuel economy.'' \70\ Instead, NHTSA is compelled ``to weigh the 
benefits to the nation of a higher fuel economy standard against the 
difficulties of individual automobile manufacturers.'' \71\ The law 
permits CAFE standards exceeding the projected capability of any 
particular manufacturer as long as the standard is economically 
practicable for the industry as a whole. Thus, while a particular CAFE 
standard may pose difficulties for one manufacturer, it may also 
present opportunities for another. NHTSA has long held that the CAFE 
program is not necessarily intended to maintain the competitive 
positioning of each particular company. Rather, it is intended to 
enhance the fuel economy of the vehicle fleet on American roads, while 
protecting motor vehicle safety and being mindful of the risk to the 
overall United States economy.
---------------------------------------------------------------------------

    \70\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).
    \71\ Id.
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(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission,

[[Page 74898]]

safety, noise, or damageability standards on fuel economy capability 
and thus on average fuel economy. In previous CAFE rulemakings, the 
agency has said that pursuant to this provision, it considers the 
adverse effects of other motor vehicle standards on fuel economy. It 
said so because, from the CAFE program's earliest years \72\ until 
present, the effects of such compliance on fuel economy capability over 
the history of the CAFE program have been negative ones. For example, 
safety standards that have the effect of increasing vehicle weight 
lower vehicle fuel economy capability and thus decrease the level of 
average fuel economy that the agency can determine to be feasible.
---------------------------------------------------------------------------

    \72\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
---------------------------------------------------------------------------

    In the wake of Massachusetts v. EPA and of EPA's endangerment 
finding, granting of a waiver to California for its motor vehicle GHG 
standards, and its own establishment of GHG standards, NHTSA is 
confronted with the issue of how to treat those standards under EPCA/
EISA, such as in the context of the ``other motor vehicle standards'' 
provision. To the extent the GHG standards result in increases in fuel 
economy, they would do so almost exclusively as a result of inducing 
manufacturers to install the same types of technologies used by 
manufacturers in complying with the CAFE standards.
    Comment is requested on whether and in what way the effects of the 
California and EPA standards should be considered under EPCA/EISA, 
e.g., under the ``other motor vehicle standards'' provision, consistent 
with NHTSA's independent obligation under EPCA/EISA to issue CAFE 
standards. The agency has already considered EPA's proposal and the 
harmonization benefits of the National Program in developing its own 
proposal.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \73\ Environmental implications 
principally include reductions in emissions of carbon dioxide and 
criteria pollutants and air toxics. Prime examples of foreign policy 
implications are energy independence and security concerns.
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    \73\ 42 FR 63184, 63188 (1977).
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(5) Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society, which is related to the consumer cost (or rather, benefit) 
of our need for large quantities of petroleum. In this rule, NHTSA 
relies on fuel price projections from the U.S. Energy Information 
Administration's (EIA) most recent Annual Energy Outlook (AEO) for this 
analysis. Federal government agencies generally use EIA's projections 
in their assessments of future energy-related policies.
(6) Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) Higher prices for 
petroleum products resulting from the effect of U.S. oil import demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the United States to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above the resource costs of producing them. 
Conversely, reducing U.S. imports of crude petroleum or refined fuels 
or reducing fuel consumption can reduce these external costs.
(7) Air Pollutant Emissions
    While reductions in domestic fuel refining and distribution that 
result from lower fuel consumption will reduce U.S. emissions of 
various pollutants, additional vehicle use associated with the rebound 
effect \74\ from higher fuel economy will increase emissions of these 
pollutants. Thus, the net effect of stricter CAFE standards on 
emissions of each pollutant depends on the relative magnitudes of its 
reduced emissions in fuel refining and distribution, and increases in 
its emissions from vehicle use. Fuel savings from stricter CAFE 
standards also result in lower emissions of CO2, the main 
greenhouse gas emitted as a result of refining, distribution, and use 
of transportation fuels. Reducing fuel consumption reduces carbon 
dioxide emissions directly, because the primary source of 
transportation-related CO2 emissions is fuel combustion in 
internal combustion engines.
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    \74\ The ``rebound effect'' refers to the tendency of drivers to 
drive their vehicles more as the cost of doing so goes down, as when 
fuel economy improves.
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    NHTSA has considered environmental issues, both within the context 
of EPCA and the National Environmental Policy Act, in making decisions 
about the setting of standards from the earliest days of the CAFE 
program. As courts of appeal have noted in three decisions stretching 
over the last 20 years,\75\ NHTSA defined the ``need of the Nation to 
conserve energy'' in the late 1970s as including ``the consumer cost, 
national balance of payments, environmental, and foreign policy 
implications of our need for large quantities of petroleum, especially 
imported petroleum.'' \76\ In 1988, NHTSA included climate change 
concepts in its CAFE notices and prepared its first environmental 
assessment addressing that subject.\77\ It cited concerns about climate 
change as one of its reasons for limiting the extent of its reduction 
of the CAFE standard for MY 1989 passenger cars.\78\ Since then, NHTSA 
has considered the benefits of reducing tailpipe carbon dioxide 
emissions in its fuel economy rulemakings pursuant to the statutory 
requirement to consider the nation's need to conserve energy by 
reducing fuel consumption.
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    \75\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12 
(D.C. Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27 
(D.C. Cir. 1988) (noting that ``NHTSA itself has interpreted the 
factors it must consider in setting CAFE standards as including 
environmental effects''); and Center for Biological Diversity v. 
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \76\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \77\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \78\ 53 FR 39275, 39302 (Oct. 6, 1988).
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ii. Other Factors Considered by NHTSA
    NHTSA considers the potential for adverse safety consequences when 
establishing CAFE standards. This practice is recognized approvingly in 
case law.\79\ Under the universal or ``flat''

[[Page 74899]]

CAFE standards that NHTSA was previously authorized to establish, the 
primary risk to safety came from the possibility that manufacturers 
would respond to higher standards by building smaller, less safe 
vehicles in order to ``balance out'' the larger, safer vehicles that 
the public generally preferred to buy. Under the attribute-based 
standards being proposed in this action, that risk is reduced because 
building smaller vehicles tends to raise a manufacturer's overall CAFE 
obligation, rather than only raising its fleet average CAFE. However, 
even under attribute-based standards, there is still risk that 
manufacturers will rely on down-weighting to improve their fuel economy 
(for a given vehicle at a given footprint target) in ways that may 
reduce safety.\80\
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    \79\ As the United States Court of Appeals pointed out in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901 
F.2d 107, 120 at n.11 (D.C. Cir. 1990).
    \80\ For example, by reducing the mass of the smallest vehicles 
rather than the largest, or by reducing vehicle overhang outside the 
space measured as ``footprint,'' which results in less crush space.
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iii. Factors That NHTSA Is Statutorily Prohibited From Considering in 
Setting Standards
    EPCA provides that in determining the level at which it should set 
CAFE standards for a particular model year, NHTSA may not consider the 
ability of manufacturers to take advantage of several EPCA provisions 
that facilitate compliance with the CAFE standards and thereby reduce 
the costs of compliance. Specifically, in determining the maximum 
feasible level of fuel economy for passenger cars and light trucks, 
NHTSA cannot consider the fuel economy benefits of ``dedicated'' 
alternative fuel vehicles (like battery electric vehicles or natural 
gas vehicles), must consider dual-fueled automobiles to be operated 
only on gasoline or diesel fuel, and may not consider the ability of 
manufacturers to use, trade, or transfer credits.\81\ This provision 
limits, to some extent, the fuel economy levels that NHTSA can find to 
be ``maximum feasible''--if NHTSA cannot consider the fuel economy of 
electric vehicles, for example, NHTSA cannot set a standards predicated 
on manufacturers' usage of electric vehicles to meet the standards.
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    \81\ 49 U.S.C. 32902(h). We note, as discussed in greater detail 
in Section IV, that NHTSA interprets 32902(h) as reflecting 
Congress' intent that statutorily-mandated compliance flexibilities 
remain flexibilities. When a compliance flexibility is not 
statutorily mandated, therefore, or when it ceases to be available 
under the statute, we interpret 32902(h) as no longer binding the 
agency's determination of the maximum feasible levels of fuel 
economy. For example, when the manufacturing incentive for dual-
fueled automobiles under 49 U.S.C. 32905 and 32906 expires in MY 
2019, there is no longer a flexibility left to protect per 32902(h), 
so NHTSA considers the calculated fuel economy of plug-in hybrid 
electric vehicles for purposes of determining the maximum feasible 
standards in MYs 2020 and beyond.
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iv. Weighing and Balancing of Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the average fuel economy level that the manufacturers can 
achieve. Congress ``specifically delegated the process of setting * * * 
fuel economy standards with broad guidelines concerning the factors 
that the agency must consider.'' \82\ The breadth of those guidelines, 
the absence of any statutorily prescribed formula for balancing the 
factors, the fact that the relative weight to be given to the various 
factors may change from rulemaking to rulemaking as the underlying 
facts change, and the fact that the factors may often be conflicting 
with respect to whether they militate toward higher or lower standards 
give NHTSA discretion to decide what weight to give each of the 
competing policies and concerns and then determine how to balance 
them--``as long as NHTSA's balancing does not undermine the fundamental 
purpose of the EPCA: energy conservation,'' \83\ and as long as that 
balancing reasonably accommodates ``conflicting policies that were 
committed to the agency's care by the statute.'' \84\ Thus, EPCA does 
not mandate that any particular number be adopted when NHTSA determines 
the level of CAFE standards.
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    \82\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, at 1341 
(D.C. Cir. 1986).
    \83\ CBD v. NHTSA, 538 F.3d at 1195 (9th Cir. 2008).
    \84\ Id.
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v. Other Requirements Related to Standard Setting
    The standards for passenger cars and for light trucks must increase 
ratably each year through MY 2020.\85\ This statutory requirement is 
interpreted, in combination with the requirement to set the standards 
for each model year at the level determined to be the maximum feasible 
level that manufacturers can achieve for that model year, to mean that 
the annual increases should not be disproportionately large or small in 
relation to each other.\86\ Standards after 2020 must simply be set at 
the maximum feasible level.\87\
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    \85\ 49 U.S.C. 32902(b)(2)(C).
    \86\ See 74 FR 14196, 14375-76 (Mar. 30, 2009).
    \87\ 49 U.S.C. 32902(b)(2)(B).
---------------------------------------------------------------------------

    The standards for passenger cars and light trucks must also be 
based on one or more vehicle attributes, like size or weight, which 
correlate with fuel economy and must be expressed in terms of a 
mathematical function.\88\ Fuel economy targets are set for individual 
vehicles and increase as the attribute decreases and vice versa. For 
example, footprint-based standards assign higher fuel economy targets 
to smaller-footprint vehicles and lower ones to larger footprint-
vehicles. The fleetwide average fuel economy that a particular 
manufacturer is required to achieve depends on the footprint mix of its 
fleet, i.e., the proportion of the fleet that is small-, medium-, or 
large-footprint.
---------------------------------------------------------------------------

    \88\ 49 U.S.C. 32902(b)(3).
---------------------------------------------------------------------------

    This approach can be used to require virtually all manufacturers to 
increase significantly the fuel economy of a broad range of both 
passenger cars and light trucks, i.e., the manufacturer must improve 
the fuel economy of all the vehicles in its fleet. Further, this 
approach can do so without creating an incentive for manufacturers to 
make small vehicles smaller or large vehicles larger, with attendant 
implications for safety.
b. Test Procedures for Measuring Fuel Economy
    EPCA provides EPA with the responsibility for establishing 
procedures to measure fuel economy and to calculate CAFE. Current test 
procedures measure the effects of nearly all fuel saving technologies. 
EPA is considering revising the procedures for measuring fuel economy 
and calculating average fuel economy for the CAFE program, however, to 
account for four impacts on fuel economy not currently included in 
these procedures--increases in fuel economy because of increases in 
efficiency of the air conditioning system; increases in fuel economy 
because of technology improvements that achieve ``off-cycle'' benefits; 
incentives for use of certain hybrid technologies in a significant 
percentage of pickup trucks; and incentives for achieving fuel economy 
levels in a significant percentage pickup trucks that exceeds the 
target curve by specified amounts, in the form of increased values 
assigned for fuel economy. NHTSA has taken these proposed changes into 
account in determining the proposed fuel economy standards. These 
changes would be the same as program elements that are part of EPA's 
greenhouse gas performance

[[Page 74900]]

standards, discussed in Section III.B.10. As discussed below, these 
three elements would be implemented in the same manner as in the EPA's 
greenhouse gas program--a vehicle manufacturer would have the option to 
generate these fuel economy values for vehicle models that meet the 
criteria for these elements and to use these values in calculating 
their fleet average fuel economy. This proposed revision to CAFE 
calculation is discussed in more detail in Sections III and IV below.
c. Enforcement and Compliance Flexibility
    NHTSA determines compliance with the CAFE standards based on 
measurements of automobile manufacturers' CAFE from EPA. If a 
manufacturer's passenger car or light truck CAFE level exceeds the 
applicable standard for that model year, the manufacturer earns credits 
for over-compliance. The amount of credit earned is determined by 
multiplying the number of tenths of a mpg by which a manufacturer 
exceeds a standard for a particular category of automobiles by the 
total volume of automobiles of that category manufactured by the 
manufacturer for a given model year. As discussed in more detail in 
Section IV.I, credits can be carried forward for 5 model years or back 
for 3, and can also be transferred between a manufacturer's fleets or 
traded to another manufacturer.
    If a manufacturer's passenger car or light truck CAFE level does 
not meet the applicable standard for that model year, NHTSA notifies 
the manufacturer. The manufacturer may use ``banked'' credits to make 
up the shortfall, but if there are no (or not enough) credits 
available, then the manufacturer has the option to submit a ``carry 
back plan'' to NHTSA. A carry back plan describes what the manufacturer 
plans to do in the following three model years to earn enough credits 
to make up for the shortfall through future over-compliance. NHTSA must 
examine and determine whether to approve the plan.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties.\89\ The Act specifies a precise 
formula for determining the amount of civil penalties for such a 
noncompliance. The penalty, as adjusted for inflation by law, is $5.50 
for each tenth of a mpg that a manufacturer's average fuel economy 
falls short of the standard for a given model year multiplied by the 
total volume of those vehicles in the affected fleet (i.e., import or 
domestic passenger car, or light truck), manufactured for that model 
year. The amount of the penalty may not be reduced except under the 
unusual or extreme circumstances specified in the statute, which have 
never been exercised by NHTSA in the history of the CAFE program.
---------------------------------------------------------------------------

    \89\ EPCA does not provide authority for seeking to enjoin 
violations of the CAFE standards.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions \90\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature that must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \90\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
individual vehicles are not required to meet or exceed those targets. 
However, as a practical matter, if a manufacturer chooses to design 
some vehicles that fall below their target levels of fuel economy, it 
will need to design other vehicles that exceed their targets if the 
manufacturer's overall fleet average is to meet the applicable 
standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
2. EPA Statutory Authority
    Title II of the Clean Air Act (CAA) provides for comprehensive 
regulation of mobile sources, authorizing EPA to regulate emissions of 
air pollutants from all mobile source categories. Pursuant to these 
sweeping grants of authority, EPA considers such issues as technology 
effectiveness, its cost (both per vehicle, per manufacturer, and per 
consumer), the lead time necessary to implement the technology, and 
based on this the feasibility and practicability of potential 
standards; the impacts of potential standards on emissions reductions 
of both GHGs and non-GHGs; the impacts of standards on oil conservation 
and energy security; the impacts of standards on fuel savings by 
consumers; the impacts of standards on the auto industry; other energy 
impacts; as well as other relevant factors such as impacts on safety
    Pursuant to Title II of the Clean Air Act, EPA has taken a 
comprehensive, integrated approach to mobile source emission control 
that has produced benefits well in excess of the costs of regulation. 
In developing the Title II program, the Agency's historic, initial 
focus was on personal vehicles since that category represented the 
largest source of mobile source emissions. Over time, EPA has 
established stringent emissions standards for large truck and other 
heavy-duty engines, nonroad engines, and marine and locomotive engines, 
as well. The Agency's initial focus on personal vehicles has resulted 
in significant control of emissions from these vehicles, and also led 
to technology transfer to the other mobile source categories that made 
possible the stringent standards for these other categories.
    As a result of Title II requirements, new cars and SUVs sold today 
have emissions levels of hydrocarbons, oxides of nitrogen, and carbon 
monoxide that are 98-99% lower than new vehicles sold in the 1960s, on 
a per mile basis. Similarly, standards established for heavy-duty 
highway and nonroad sources require emissions rate reductions on the 
order of 90% or more for particulate matter and oxides of nitrogen. 
Overall ambient levels of automotive-related pollutants are lower now 
than in 1970, even as economic growth and vehicle miles traveled have 
nearly tripled. These programs have resulted in millions of tons of 
pollution reduction and major reductions in pollution-related deaths 
(estimated in the tens of thousands per year) and illnesses. The net 
societal benefits of the mobile source programs are large. In its 
annual reports on federal regulations, the Office of Management and 
Budget reports that many of EPA's mobile source emissions standards 
typically have projected benefit-to-cost ratios of 5:1 to 10:1 or more. 
Follow-up studies show that long-term compliance costs to the industry 
are typically lower than the

[[Page 74901]]

cost projected by EPA at the time of regulation, which result in even 
more favorable real world benefit-to-cost ratios.\91\ Pollution 
reductions attributable to Title II mobile source controls are critical 
components to attainment of primary National Ambient Air Quality 
Standards, significantly reducing the national inventory and ambient 
concentrations of criteria pollutants, especially PM2.5 and ozone. See 
e.g. 69 FR 38958, 38967-68 (June 29, 2004) (controls on non-road diesel 
engines expected to reduce entire national inventory of PM2.5 by 3.3% 
(86,000 tons) by 2020). Title II controls have also made enormous 
reductions in air toxics emitted by mobile sources. For example, as a 
result of EPA's 2007 mobile source air toxics standards, the cancer 
risk attributable to total mobile source air toxics will be reduced by 
30% in 2030 and the risk from mobile source benzene (a leukemogen) will 
be reduced by 37% in 2030. (reflecting reductions of over three hundred 
thousand tons of mobile source air toxic emissions) 72 FR 8428, 8430 
(Feb. 26, 2007).
---------------------------------------------------------------------------

    \91\ OMB, 2011. 2011 Report to Congress on the Benefits and 
Costs of Federal Regulations and Unfunded Mandates on State, Local, 
and Tribal Entities. Office of Information and Regulatory Affairs. 
June. http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf. Web site accessed on October 11, 
2011.
---------------------------------------------------------------------------

    Title II emission standards have also stimulated the development of 
a much broader set of advanced automotive technologies, such as on-
board computers and fuel injection systems, which are the building 
blocks of today's automotive designs and have yielded not only lower 
pollutant emissions, but improved vehicle performance, reliability, and 
durability.
    This proposal implements a specific provision from Title II, 
section 202(a).\92\ Section 202(a)(1) of the Clean Air Act (CAA) states 
that ``the Administrator shall by regulation prescribe (and from time 
to time revise) * * * standards applicable to the emission of any air 
pollutant from any class or classes of new motor vehicles * * *, which 
in his judgment cause, or contribute to, air pollution which may 
reasonably be anticipated to endanger public health or welfare.'' If 
EPA makes the appropriate endangerment and cause or contribute 
findings, then section 202(a) authorizes EPA to issue standards 
applicable to emissions of those pollutants.
---------------------------------------------------------------------------

    \92\ 42 U.S.C. 7521 (a)
---------------------------------------------------------------------------

    Any standards under CAA section 202(a)(1) ``shall be applicable to 
such vehicles * * * for their useful life.'' Emission standards set by 
the EPA under CAA section 202(a)(1) are technology-based, as the levels 
chosen must be premised on a finding of technological feasibility. 
Thus, standards promulgated under CAA section 202(a) are to take effect 
only ``after providing such period as the Administrator finds necessary 
to permit the development and application of the requisite technology, 
giving appropriate consideration to the cost of compliance within such 
period'' (section 202 (a)(2); see also NRDC v. EPA, 655 F. 2d 318, 322 
(DC Cir. 1981)). EPA is afforded considerable discretion under section 
202(a) when assessing issues of technical feasibility and availability 
of lead time to implement new technology. Such determinations are 
``subject to the restraints of reasonableness'', which ``does not open 
the door to `crystal ball' inquiry.'' NRDC, 655 F. 2d at 328, quoting 
International Harvester Co. v. Ruckelshaus, 478 F. 2d 615, 629 (DC Cir. 
1973). However, ``EPA is not obliged to provide detailed solutions to 
every engineering problem posed in the perfection of the trap-oxidizer. 
In the absence of theoretical objections to the technology, the agency 
need only identify the major steps necessary for development of the 
device, and give plausible reasons for its belief that the industry 
will be able to solve those problems in the time remaining. The EPA is 
not required to rebut all speculation that unspecified factors may 
hinder `real world' emission control.'' NRDC, 655 F. 2d at 333-34. In 
developing such technology-based standards, EPA has the discretion to 
consider different standards for appropriate groupings of vehicles 
(``class or classes of new motor vehicles''), or a single standard for 
a larger grouping of motor vehicles (NRDC, 655 F. 2d at 338).
    Although standards under CAA section 202(a)(1) are technology-
based, they are not based exclusively on technological capability. EPA 
has the discretion to consider and weigh various factors along with 
technological feasibility, such as the cost of compliance (see section 
202(a) (2)), lead time necessary for compliance (section 202(a)(2)), 
safety (see NRDC, 655 F. 2d at 336 n. 31) and other impacts on 
consumers,\93\ and energy impacts associated with use of the 
technology. See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 
(DC Cir. 1998) (ordinarily permissible for EPA to consider factors not 
specifically enumerated in the Act).
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    \93\ Since its earliest Title II regulations, EPA has considered 
the safety of pollution control technologies. See 45 Fed. Reg. 
14,496, 14,503 (1980). (``EPA would not require a particulate 
control technology that was known to involve serious safety 
problems. If during the development of the trap-oxidizer safety 
problems are discovered, EPA would reconsider the control 
requirements implemented by this rulemaking'').
---------------------------------------------------------------------------

    In addition, EPA has clear authority to set standards under CAA 
section 202(a) that are technology forcing when EPA considers that to 
be appropriate, but is not required to do so (as compared to standards 
set under provisions such as section 202(a)(3) and section 213(a)(3)). 
EPA has interpreted a similar statutory provision, CAA section 231, as 
follows:

    While the statutory language of section 231 is not identical to 
other provisions in title II of the CAA that direct EPA to establish 
technology-based standards for various types of engines, EPA 
interprets its authority under section 231 to be somewhat similar to 
those provisions that require us to identify a reasonable balance of 
specified emissions reduction, cost, safety, noise, and other 
factors. See, e.g., Husqvarna AB v. EPA, 254 F.3d 195 (DC Cir. 2001) 
(upholding EPA's promulgation of technology-based standards for 
small non-road engines under section 213(a)(3) of the CAA). However, 
EPA is not compelled under section 231 to obtain the ``greatest 
degree of emission reduction achievable'' as per sections 213 and 
202 of the CAA, and so EPA does not interpret the Act as requiring 
the agency to give subordinate status to factors such as cost, 
safety, and noise in determining what standards are reasonable for 
aircraft engines. Rather, EPA has greater flexibility under section 
231 in determining what standard is most reasonable for aircraft 
engines, and is not required to achieve a ``technology forcing'' 
result.\94\
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    \94\ 70 FR 69664, 69676, November 17, 2005.

    This interpretation was upheld as reasonable in NACAA v. EPA, (489 
F.3d 1221, 1230 (DC Cir. 2007)). CAA section 202(a) does not specify 
the degree of weight to apply to each factor, and EPA accordingly has 
discretion in choosing an appropriate balance among factors. See Sierra 
Club v. EPA, 325 F.3d 374, 378 (DC Cir. 2003) (even where a provision 
is technology-forcing, the provision ``does not resolve how the 
Administrator should weigh all [the statutory] factors in the process 
of finding the `greatest emission reduction achievable' ''). Also see 
Husqvarna AB v. EPA, 254 F. 3d 195, 200 (DC Cir. 2001) (great 
discretion to balance statutory factors in considering level of 
technology-based standard, and statutory requirement ``to [give 
appropriate] consideration to the cost of applying * * * technology'' 
does not mandate a specific method of cost analysis); see also Hercules 
Inc. v. EPA, 598 F. 2d 91, 106 (DC Cir. 1978) (``In reviewing a 
numerical standard we must ask whether the agency's numbers are within 
a zone of reasonableness, not

[[Page 74902]]

whether its numbers are precisely right''); Permian Basin Area Rate 
Cases, 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. 
Conway Corp., 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas 
Marketing Co. v. FERC, 297 F. 3d 1071, 1084 (DC Cir. 2002) (same).
a. EPA's Testing Authority
    Under section 203 of the CAA, sales of vehicles are prohibited 
unless the vehicle is covered by a certificate of conformity. EPA 
issues certificates of conformity pursuant to section 206 of the Act, 
based on (necessarily) pre-sale testing conducted either by EPA or by 
the manufacturer. The Federal Test Procedure (FTP or ``city'' test) and 
the Highway Fuel Economy Test (HFET or ``highway'' test) are used for 
this purpose. Compliance with standards is required not only at 
certification but throughout a vehicle's useful life, so that testing 
requirements may continue post-certification. Useful life standards may 
apply an adjustment factor to account for vehicle emission control 
deterioration or variability in use (section 206(a)).
    Pursuant to EPCA, EPA is required to measure fuel economy for each 
model and to calculate each manufacturer's average fuel economy.\95\ 
EPA uses the same tests--the FTP and HFET--for fuel economy testing. 
EPA established the FTP for emissions measurement in the early 1970s. 
In 1976, in response to the Energy Policy and Conservation Act (EPCA) 
statute, EPA extended the use of the FTP to fuel economy measurement 
and added the HFET.\96\ The provisions in the 1976 regulation, 
effective with the 1977 model year, established procedures to calculate 
fuel economy values both for labeling and for CAFE purposes. Under 
EPCA, EPA is required to use these procedures (or procedures which 
yield comparable results) for measuring fuel economy for cars for CAFE 
purposes, but not for labeling purposes.\97\ EPCA does not pose this 
restriction on CAFE test procedures for light trucks, but EPA does use 
the FTP and HFET for this purpose. EPA determines fuel economy by 
measuring the amount of CO2 and all other carbon compounds 
(e.g. total hydrocarbons (THC) and carbon monoxide (CO)), and then, by 
mass balance, calculating the amount of fuel consumed. EPA's proposed 
changes to the procedures for measuring fuel economy and calculating 
average fuel economy are discussed in section III.B.10.
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    \95\ See 49 U.S.C. 32904(c).
    \96\ See 41 FR 38674 (Sept. 10, 1976), which is codified at 40 
CFR part 600.
    \97\ See 49 U.S.C. 32904(c).
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b. EPA Enforcement Authority
    Section 207 of the CAA grants EPA broad authority to require 
manufacturers to remedy vehicles if EPA determines there are a 
substantial number of noncomplying vehicles. In addition, section 205 
of the CAA authorizes EPA to assess penalties of up to $37,500 per 
vehicle for violations of various prohibited acts specified in the CAA. 
In determining the appropriate penalty, EPA must consider a variety of 
factors such as the gravity of the violation, the economic impact of 
the violation, the violator's history of compliance, and ``such other 
matters as justice may require.'' Unlike EPCA, the CAA does not 
authorize vehicle manufacturers to pay fines in lieu of meeting 
emission standards.
c. Compliance
    EPA oversees testing, collects and processes test data, and 
performs calculations to determine compliance with both CAA and CAFE 
standards. CAA standards apply not only at the time of certification 
but also throughout the vehicle's useful life, and EPA is accordingly 
is proposing in-use standards as well as standards based on testing 
performed at time of production. See section III.E. Both the CAA and 
EPCA provide for penalties should manufacturers fail to comply with 
their fleet average standards, but, unlike EPCA, there is no option for 
manufacturers to pay fines in lieu of compliance with the standards. 
Under the CAA, penalties are typically determined on a vehicle-specific 
basis by determining the number of a manufacturer's highest emitting 
vehicles that cause the fleet average standard violation. Penalties 
under Title II of the CAA are capped at $25,000 per day of violation 
and apply on a per vehicle basis. CAA section 205 (a).
d. Test Procedures
    EPA establishes the test procedures under which compliance with 
both the CAA GHG standards and the EPCA fuel economy standards are 
measured. EPA's testing authority under the CAA is flexible, but 
testing for fuel economy for passenger cars is by statute is limited to 
the Federal Test procedure (FTP) or test procedures which provide 
results which are equivalent to the FTP. 49 USC section 32904 and 
section III.B, below. EPA developed and established the FTP in the 
early 1970s and, after enactment of EPCA in 1976, added the Highway 
Fuel Economy Test to be used in conjunction with the FTP for fuel 
economy testing. EPA has also developed tests with additional cycles 
(the so-called 5-cycle test) which test is used for purposes of fuel 
economy labeling and is also used in the EPA program for extending off-
cycle credits under both the light-duty and (along with NHTSA) heavy-
duty vehicle GHG programs. See 75 FR at 25439; 76 FR at 57252. In this 
rule, EPA is proposing to retain the FTP and HFET for purposes of 
testing the fleetwide average standards, and is further proposing 
modifications to the N2O measurement test procedures and the A/C 
CO2 efficiency test procedures EPA initially adopted in the 
2012-2016 rule.
3. Comparing the Agencies' Authority
    As the above discussion makes clear, there are both important 
differences between the statutes under which each agency is acting as 
well as several important areas of similarity. One important difference 
is that EPA's authority addresses various GHGs, while NHTSA's authority 
addresses fuel economy as measured under specified test procedures and 
calculated by EPA. This difference is reflected in this rulemaking in 
the scope of the two standards: EPA's proposal takes into account 
reductions of direct air conditioning emissions, as well as proposed 
standards for methane and N2O, but NHTSA's does not, because 
these things do not relate to fuel economy. A second important 
difference is that EPA is proposing certain compliance flexibilities, 
such as the multiplier for advanced technology vehicles, and takes 
those flexibilities into account in its technical analysis and modeling 
supporting its proposal. EPCA specifies a number of particular 
compliance flexibilities for CAFE, and expressly prohibits NHTSA from 
considering the impacts of those statutory compliance flexibilities in 
setting the CAFE standard so that the manufacturers' election to avail 
themselves of the permitted flexibilities remains strictly 
voluntary.\98\ The Clean Air Act, on the other hand, contains no such 
prohibition. These considerations result in some differences in the 
technical analysis and modeling used to support EPA's and NHTSA's 
proposed standards.
---------------------------------------------------------------------------

    \98\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    Another important area where the two agencies' authorities are 
similar but not identical involves the transfer of credits between a 
single firm's car and truck fleets. EISA revised EPCA to allow for such 
credit transfers, but placed a cap on the amount of CAFE credits which 
can be transferred between the car and

[[Page 74903]]

truck fleets. 49 U.S.C. 32903(g)(3). Under CAA section 202(a), EPA is 
proposing to continue to allow CO2 credit transfers between 
a single manufacturer's car and truck fleets, with no corresponding 
limits on such transfers. In general, the EISA limit on CAFE credit 
transfers is not expected to have the practical effect of limiting the 
amount of CO2 emission credits manufacturers may be able to 
transfer under the CAA program, recognizing that manufacturers must 
comply with both the proposed CAFE standards and the proposed EPA 
standards. However, it is possible that in some specific circumstances 
the EPCA limit on CAFE credit transfers could constrain the ability of 
a manufacturer to achieve cost savings through unlimited use of GHG 
emissions credit transfers under the CAA program.
    These differences, however, do not change the fact that in many 
critical ways the two agencies are charged with addressing the same 
basic issue of reducing GHG emissions and improving fuel economy. The 
agencies are looking at the same set of control technologies (with the 
exception of the air conditioning leakage-related technologies). The 
standards set by each agency will drive the kind and degree of 
penetration of this set of technologies across the vehicle fleet. As a 
result, each agency is trying to answer the same basic question--what 
kind and degree of technology penetration is necessary to achieve the 
agencies' objectives in the rulemaking time frame, given the agencies' 
respective statutory authorities?
    In making the determination of what standards are appropriate under 
the CAA and EPCA, each agency is to exercise its judgment and balance 
many similar factors. NHTSA's factors are provided by EPCA: 
technological feasibility, economic practicability, the effect of other 
motor vehicle standards of the Government on fuel economy, and the need 
of the United States to conserve energy. EPA has the discretion under 
the CAA to consider many related factors, such as the availability of 
technologies, the appropriate lead time for introduction of technology, 
and based on this the feasibility and practicability of their 
standards; the impacts of their standards on emissions reductions (of 
both GHGs and non-GHGs); the impacts of their standards on oil 
conservation; the impacts of their standards on fuel savings by 
consumers; the impacts of their standards on the auto industry; as well 
as other relevant factors such as impacts on safety. Conceptually, 
therefore, each agency is considering and balancing many of the same 
concerns, and each agency is making a decision that at its core is 
answering the same basic question of what kind and degree of technology 
penetration is it appropriate to call for in light of all of the 
relevant factors in a given rulemaking, for the model years concerned. 
Finally, each agency has the authority to take into consideration 
impacts of the standards of the other agency. EPCA calls for NHTSA to 
take into consideration the effects of EPA's emissions standards on 
fuel economy capability (see 49 U.S.C. 32902 (f)), and EPA has the 
discretion to take into consideration NHTSA's CAFE standards in 
determining appropriate action under section 202(a). This is consistent 
with the Supreme Court's statement that EPA's mandate to protect public 
health and welfare is wholly independent from NHTSA's mandate to 
promote energy efficiency, but there is no reason to think the two 
agencies cannot both administer their obligations and yet avoid 
inconsistency. Massachusetts v. EPA, 549 U.S. 497, 532 (2007).
    In this context, it is in the Nation's interest for the two 
agencies to continue to work together in developing their respective 
proposed standards, and they have done so. For example, the agencies 
have committed considerable effort to develop a joint Technical Support 
Document that provides a technical basis underlying each agency's 
analyses. The agencies also have worked closely together in developing 
and reviewing their respective modeling, to develop the best analysis 
and to promote technical consistency. The agencies have developed a 
common set of attribute-based curves that each agency supports as 
appropriate both technically and from a policy perspective. The 
agencies have also worked closely to ensure that their respective 
programs will work in a coordinated fashion, and will provide 
regulatory compatibility that allows auto manufacturers to build a 
single national light-duty fleet that would comply with both the GHG 
and the CAFE standards. The resulting overall close coordination of the 
proposed GHG and CAFE standards should not be surprising, however, as 
each agency is using a jointly developed technical basis to address the 
closely intertwined challenges of energy security and climate change.
    As set out in detail in Sections III and IV of this notice, both 
EPA and NHTSA believe the agencies' proposals are fully justified under 
their respective statutory criteria. The proposed standards are 
feasible in each model year within the lead time provided, based on the 
agencies' projected increased use of various technologies which in most 
cases are already in commercial application in the fleet to varying 
degrees. Detailed modeling of the technologies that could be employed 
by each manufacturer supports this initial conclusion. The agencies 
also carefully assessed the costs of the proposed rules, both for the 
industry as a whole and per manufacturer, as well as the costs per 
vehicle, and consider these costs to be reasonable during the 
rulemaking time frame and recoverable (from fuel savings). The agencies 
recognize the significant increase in the application of technology 
that the proposed standards would require across a high percentage of 
vehicles, which will require the manufacturers to devote considerable 
engineering and development resources before 2017 laying the critical 
foundation for the widespread deployment of upgraded technology across 
a high percentage of the 2017-2025 fleet. This clearly will be 
challenging for automotive manufacturers and their suppliers, 
especially in the current economic climate, and given the stringency of 
the recently-established MYs 2012-2016 standards. However, based on all 
of the analyses performed by the agencies, our judgment is that it is a 
challenge that can reasonably be met.
    The agencies also evaluated the impacts of these standards with 
respect to the expected reductions in GHGs and oil consumption and, 
found them to be very significant in magnitude. The agencies considered 
other factors such as the impacts on noise, energy, and vehicular 
congestion. The impact on safety was also given careful consideration. 
Moreover, the agencies quantified the various costs and benefits of the 
proposed standards, to the extent practicable. The agencies' analyses 
to date indicate that the overall quantified benefits of the proposed 
standards far outweigh the projected costs. All of these factors 
support the reasonableness of the proposed standards. See section III 
(proposed GHG standards) and section IV (proposed CAFE standards) for a 
detailed discussion of each agency's basis for its selection of its 
proposed standards.
    The fact that the benefits are estimated to considerably exceed 
their costs supports the view that the proposed standards represent an 
appropriate balance of the relevant statutory factors. In drawing this 
conclusion, the agencies acknowledge the uncertainties and limitations 
of the analyses. For example, the analysis of the benefits is highly 
dependent on the estimated price of fuel projected out many years into 
the future. There is also significant uncertainty in the potential

[[Page 74904]]

range of values that could be assigned to the social cost of carbon. 
There are a variety of impacts that the agencies are unable to 
quantify, such as non-market damages, extreme weather, socially 
contingent effects, or the potential for longer-term catastrophic 
events, or the impact on consumer choice. The cost-benefit analyses are 
one of the important things the agencies consider in making a judgment 
as to the appropriate standards to propose under their respective 
statutes. Consideration of the results of the cost-benefit analyses by 
the agencies, however, includes careful consideration of the 
limitations discussed above.

II. Joint Technical Work Completed for This Proposal

A. Introduction

    In this section, NHTSA and EPA discuss several aspects of their 
joint technical analyses. These analyses are common to the development 
of each agency's standards. Specifically we discuss: the development of 
the vehicle market forecast used by each agency for assessing costs, 
benefits, and effects, the development of the attribute-based standard 
curve shapes, the technologies the agencies evaluated and their costs 
and effectiveness, the economic assumptions the agencies included in 
their analyses, a description of the air conditioning and off-cycle 
technology (credit) programs, as well as the effects of the proposed 
standards on vehicle safety. The Joint Technical Support Document (TSD) 
discusses the agencies' joint technical work in more detail.
    The agencies have based today's proposal on a very significant body 
of data and analysis that we believe is the best information currently 
available on the full range of technical and other inputs utilized in 
our respective analyses. As noted in various places throughout this 
preamble, the draft Joint TSD, the NHTSA preliminary RIA, and the EPA 
draft RIA, we expect new information will become available between the 
proposal and final rulemaking. This new information will come from a 
range of sources: some is based on work the agencies have underway 
(e.g., work on technology costs and effectiveness, potentially updating 
our baseline year from model year 2008 to model year 2010); other 
sources are those we expect to be released by others (e.g., the Energy 
Information Agency's Annual Energy Outlook, which is published each 
year, and the most recent available version of which we expect to use 
for the final rule); and other information that will likely come from 
the public comment process. The agencies intend to evaluate all such 
new information as it becomes available, and where appropriate to 
update their analysis based on such information for purposes of the 
final rule. In addition, the agencies may make new information and/or 
analyses available in the agencies' respective public dockets for this 
rulemaking prior to the final rule, where that is appropriate, in order 
to facilitate public comment. We encourage all stakeholders to 
periodically check the two agencies' dockets between the proposal and 
final rules for any potential new docket submissions from the agencies.

B. Developing the Future Fleet for Assessing Costs, Benefits, and 
Effects

1. Why did the agencies establish a baseline and reference vehicle 
fleet?
    In order to calculate the impacts of the EPA and NHTSA regulations, 
it is necessary to estimate the composition of the future vehicle fleet 
absent these regulations, to provide a reference point relative to 
which costs, benefits, and effects of the regulations are assessed. As 
in the 2012-2016 light duty vehicle rulemaking, EPA and NHTSA have 
developed this comparison fleet in two parts. The first step was to 
develop a baseline fleet based on model year 2008 data. This baseline 
includes vehicle sales volumes, GHG/fuel economy performance, and 
contains a listing of the base technologies on every 2008 vehicle sold. 
The second step was to project that baseline fleet volume into model 
years 2017-2025. The vehicle volumes projected out to MY 2025 is 
referred to as the reference fleet volumes. The third step was to 
modify that MY 2017-2025 reference fleet such that it reflects 
technology manufacturers could apply if MY 2016 standards are extended 
without change through MY 2025.\99\ Each agency used its modeling 
system to develop a modified or final reference fleet, or adjusted 
baseline, for use in its analysis of regulatory alternatives, as 
discussed below and in Chapter 1 of the EPA draft RIA. All of the 
agencies' estimates of emission reductions, fuel economy improvements, 
costs, and societal impacts are developed in relation to the respective 
reference fleets. This section discusses the first two steps, 
development of the baseline fleet and the reference fleet.
---------------------------------------------------------------------------

    \99\ EPA's MY 2016 GHG standards under the CAA continue into the 
future until they are changed. While NHTSA must actively promulgate 
standards in order for CAFE standards to extend past MY 2016, the 
agency has, as in all recent CAFE rulemakings, defined a no-action 
(i.e., baseline) regulatory alternative as an indefinite extension 
of the last-promulgated CAFE standards for purposes of the main 
analysis of the standards in this preamble.
---------------------------------------------------------------------------

    EPA and NHTSA used a transparent approach to developing the 
baseline and reference fleets, largely working from publicly available 
data. Because both input and output sheets from our modeling are 
public, stakeholders can verify and check EPA's and NHTSA's modeling, 
and perform their own analyses with these datasets.\100\
---------------------------------------------------------------------------

    \100\ EPA's Omega Model and input sheets are available at http://www.epa.gov/oms/climate/models.htm; DOT/NHTSA's CAFE Compliance and 
Effects Modeling System (commonly known as the ``Volpe Model'') and 
input and output sheets are available at http://www.nhtsa.gov/fuel-economy.
---------------------------------------------------------------------------

2. How Did the Agencies Develop the Baseline Vehicle Fleet?
    NHTSA and EPA developed a baseline fleet comprised of model year 
2008 data gathered from EPA's emission and fuel economy database. This 
baseline fleet was originally developed by EPA and NHTSA for the 2012-
2016 final rule, and was updated for this proposal.\101\ The new fleet 
has the model year 2008 vehicle's volumes and attributes along with the 
addition of projected volumes from 2017 to 2025. It also has some 
expanded footprint data for pickup trucks that was needed for a more 
detailed analysis of the truck curve.
---------------------------------------------------------------------------

    \101\ Further discussion of the development of the 2008 baseline 
fleet for the MY2012-2016 rule can be found at 75 Fed. Reg. 25324, 
25349 (May 7, 2010).
---------------------------------------------------------------------------

    In this proposed rulemaking, the agencies are again choosing to use 
model year 2008 vehicle data to be the basis of the baseline fleet, but 
for different reasons than in the 2012-2016 final rule. Model year 2008 
is now the most recent model year for which the industry had normal 
sales. Model year 2009 data is available, but the agencies believe that 
model year was disrupted by the economic downturn and the bankruptcies 
of both General Motors and Chrysler resulting in a significant 
reduction in the number of vehicles sold by both companies and the 
industry as a whole. These abnormalities led the agencies to conclude 
that 2009 data was not representative for projecting the future fleet. 
Model Year 2010 data was not complete because not all manufacturers 
have yet submitted it to EPA, and was thus not available in time for it 
to be used for this proposal. Therefore, the agencies chose to use 
model year 2008 again as the baseline since it was the latest complete 
representative and transparent data set available. However, the 
agencies will consider using Model Year 2010 for the final rule, based 
on availability and an

[[Page 74905]]

analysis of the data representativeness. To the extent the MY 2010 data 
becomes available during the comment period the agencies will place a 
copy of this data in our respective dockets. We request comments on the 
relative merits of using MY 2008 and MY 2010 data, and whether one 
provides a better foundation than the other for purposes of using such 
data as the foundation for a market forecast extending through MY 2025.
    The baseline fleet reflects all fuel economy technologies in use on 
MY 2008 light duty vehicles. The 2008 emission and fuel economy 
database included data on vehicle production volume, fuel economy, 
engine size, number of engine cylinders, transmission type, fuel type, 
etc., however it did not contain complete information on technologies. 
Thus, the agencies relied on publicly available data like the more 
complete technology descriptions from Ward's Automotive Group.\102\ In 
a few instances when required vehicle information (such as vehicle 
footprint) was not available from these two sources, the agencies 
obtained this information from publicly accessible internet sites such 
as Motortrend.com and Edmunds.com.\103\ A description of all of the 
technologies used in modeling the 2008 vehicle fleet and how it was 
constructed are available in Chapter 1 of the Joint Draft TSD.
---------------------------------------------------------------------------

    \102\ Note that WardsAuto.com is a fee-based service, but all 
information is public to subscribers.
    \103\ Motortrend.com and Edmunds.com are free, no-fee internet 
sites.
---------------------------------------------------------------------------

    Footprint data for the baseline fleet came mainly from internet 
searches, though detailed information about the pickup truck footprints 
with volumes was not available online. Where this information was 
lacking, the agencies used manufacturer product plan data for 2008 
model year to find out the correct number footprint and distribution of 
footprints. The footprint data for pickup trucks was expanded from the 
original data used in the previous rulemaking. The agencies obtained 
this footprint data from MY 2008 product plans submitted by the various 
manufacturers, which can be made public at this time because by now all 
MY 2008 vehicle models are already in production, which makes footprint 
data about them essentially public information. A description of 
exactly how the agencies obtained all the footprints is available in 
Chapter 1 of the TSD.
3. How Did the Agencies Develop the Projected MY 2017-2025 Vehicle 
Reference Fleet?
    As in the 2012-2016 light duty vehicle rulemaking, EPA and NHTSA 
have based the projection of total car and total light truck sales for 
MYs 2017-2025 on projections made by the Department of Energy's Energy 
Information Administration (EIA). See 75 FR at 25349. EIA publishes a 
mid-term projection of national energy use called the Annual Energy 
Outlook (AEO). This projection utilizes a number of technical and 
econometric models which are designed to reflect both economic and 
regulatory conditions expected to exist in the future. In support of 
its projection of fuel use by light-duty vehicles, EIA projects sales 
of new cars and light trucks. EIA published its Early Annual Energy 
Outlook for 2011 in December 2010. EIA released updated data to NHTSA 
in February (Interim AEO). The final release of AEO for 2011 came out 
in May 2011, but by that time EPA/NHTSA had already prepared modeling 
runs for potential 2017-2025 standards using the interim data release 
to NHTSA. EPA and NHTSA are using the interim data release for this 
proposal, but intend to use the newest version of AEO available for the 
FRM.
    The agencies used the Energy Information Administration's (EIA's) 
National Energy Modeling System (NEMS) to estimate the future relative 
market shares of passenger cars and light trucks. However, NEMS 
methodology includes shifting vehicle sales volume, starting after 
2007, away from fleets with lower fuel economy (the light-truck fleet) 
towards vehicles with higher fuel economies (the passenger car fleet) 
in order to facilitate projected compliance with CAFE and GHG 
standards. Because we use our market projection as a baseline relative 
to which we measure the effects of new standards, and we attempt to 
estimate the industry's ability to comply with new standards without 
changing product mix (i.e., we analyze the effects of the proposed 
rules assuming manufacturers will not change fleet composition as a 
compliance strategy, as opposed to changes that might happen due to 
market forces), the Interim AEO 2011-projected shift in passenger car 
market share as a result of required fuel economy improvements creates 
a circularity. Therefore, for the current analysis, the agencies 
developed a new projection of passenger car and light truck sales 
shares by running scenarios from the Interim AEO 2011 reference case 
that first deactivate the above-mentioned sales-volume shifting 
methodology and then hold post-2017 CAFE standards constant at MY 2016 
levels. As discussed in Chapter 1 of the agencies' joint Technical 
Support Document, incorporating these changes reduced the NEMS-
projected passenger car share of the light vehicle market by an average 
of about 5% during 2017-2025.
    In the AEO 2011 Interim data, EIA projects that total light-duty 
vehicle sales will gradually recover from their currently depressed 
levels by around 2013. In 2017, car sales are projected to be 8.4 
million (53 percent) and truck sales are projected to be 7.3 million 
(47 percent). Although the total level of sales of 15.8 million units 
is similar to pre-2008 levels, the fraction of car sales is projected 
to be higher than that existing in the 2000-2007 timeframe. This 
projection reflects the impact of assumed higher fuel prices. Sales 
projections of cars and trucks for future model years can be found in 
Chapter 1 of the joint TSD.
    In addition to a shift towards more car sales, sales of segments 
within both the car and truck markets have been changing and are 
expected to continue to change. Manufacturers are introducing more 
crossover utility vehicles (CUVs), which offer much of the utility of 
sport utility vehicles (SUVs) but use more car-like designs. The AEO 
2011 report does not, however, distinguish such changes within the car 
and truck classes. In order to reflect these changes in fleet makeup, 
EPA and NHTSA used CSM Worldwide (CSM) as they did in the 2012-2016 
rulemaking analysis. EPA and NHTSA believe that CSM is the best source 
available for a long range forecast for 2017-2025, though when EPA and 
NHTSA contacted several forecasting firms none of them offered 
comparably-detailed forecasting for that time frame. NHTSA and EPA 
decided to use the forecast from CSM for several reasons presented in 
the Joint TSD chapter I.
    The long range forecast from CSM Worldwide is a custom forecast 
covering the years 2017-2025 which the agencies purchased from CSM in 
December of 2009. CSM provides quarterly sales forecasts for the 
automotive industry, and updates their data on the industry quarter. 
For the public's reference, a copy of CSM's long range forecast has 
been placed in the docket for this rulemaking.\104\ EPA and NHTSA hope 
to purchase and use an updated forecast,

[[Page 74906]]

whether from CSM or other appropriate sources, before the final 
rulemaking. To the extent that such a forecast becomes available during 
the comment period the agencies will place a copy in our respective 
dockets.
---------------------------------------------------------------------------

    \104\ The CSM Sales Forecast Excel file (``CSM North America 
Sales Forecasts 2017-2025 for the Docket'') is available in the 
docket (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    The next step was to project the CSM forecasts for relative sales 
of cars and trucks by manufacturer and by market segment onto the total 
sales estimates of AEO 2011. Table II-1 and Table II-2 show the 
resulting projections for the reference 2025 model year and compare 
these to actual sales that occurred in the baseline 2008 model year. 
Both tables show sales using the traditional definition of cars and 
light trucks.
BILLING CODE 4910-59-P

[[Page 74907]]

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[[Page 74908]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.028


[[Page 74909]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.029

BILLING CODE 4910-59-C
    As mentioned previously, NHTSA has changed the definition of a 
truck for 2011 model year and beyond. The new definition has moved some 
2 wheel drive SUVs and CUVs to the car category. Table II-3 shows the 
different volumes for car and trucks based on the new and old NHTSA 
definition. The table shows the difference in 2008, 2021, and 2025 to 
give a feel for how the change in definition changes the car/truck 
split.
[GRAPHIC] [TIFF OMITTED] TP01DE11.030

    The CSM forecast provides estimates of car and truck sales by 
segment and by manufacturer separately. The forecast was broken up into 
two tables. One table with manufacturer volumes by year and the other 
with vehicle segments percentages by year. Table II-4 and Table II-5 
are examples of the data received from CSM. The task of estimating 
future sales using these tables is complex. We used the same 
methodology as in the previous rulemaking. A detailed description of 
how the projection process was done is found in Chapter 1 of the TSD.
BILLING CODE 4910-59-P

[[Page 74910]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.031


[[Page 74911]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.032

BILLING CODE 4910-59-C
    The overall result was a projection of car and truck sales for 
model years 2017-2025--the reference fleet--which matched the total 
sales projections of the AEO forecast and the manufacturer and segment 
splits of the CSM forecast. These sales splits are shown in Table II-6 
below.
[GRAPHIC] [TIFF OMITTED] TP01DE11.033


[[Page 74912]]


    Given publicly- and commercially-available sources that can be made 
equally transparent to all reviewers, the forecast described above 
represents the agencies' best technical judgment regarding the likely 
composition direction of the fleet. EPA and NHTSA recognize that it is 
impossible to predict with certainty how manufacturers' product 
offerings and sales volumes will evolve through MY 2025 under baseline 
conditions--that is, without further changes in standards after MY 
2016. The agencies have not developed alternative market forecasts to 
examine corresponding sensitivity of analytical results discussed 
below, and have not varied the market forecast when conducting 
probabilistic uncertainty analysis discussed in NHTSA's preliminary 
Regulatory Impact Analysis. The agencies invite comment regarding 
alternative methods or projections to inform forecasts of the future 
fleet at the level of specificity and technical completeness required 
by the agencies' respective modeling systems.
    The final step in the construction of the final reference fleet 
involves applying additional technology to individual vehicle models--
that is, technology beyond that already present in MY 2008--reflecting 
already-promulgated standards through MY 2016, and reflecting the 
assumption that MY 2016 standards would apply through MY 2025. A 
description of the agencies' modeling work to develop their respective 
final reference (or adjusted baseline) fleets appear below in Sections 
III and IV of this preamble.

C. Development of Attribute-Based Curve Shapes

1. Why are standards attribute-based and defined by a mathematical 
function?
    As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 
2011 CAFE rule, NHTSA and EPA are proposing to set attribute-based CAFE 
and CO2 standards that are defined by a mathematical 
function. EPCA, as amended by EISA, expressly requires that CAFE 
standards for passenger cars and light trucks be based on one or more 
vehicle attributes related to fuel economy, and be expressed in the 
form of a mathematical function.\105\ The CAA has no such requirement, 
although such an approach is permissible under section 202 (a) and EPA 
has used the attribute-based approach in issuing standards under 
analogous provisions of the CAA (e.g., criteria pollutant standards for 
non-road diesel engines using engine size as the attribute,\106\ in the 
recent GHG standards for heavy duty pickups and vans using a work 
factor attribute,\107\ and in the MYs 2012-2016 GHG rule itself which 
used vehicle footprint as the attribute). Public comments on the MYs 
2012-2016 rulemaking widely supported attribute-based standards for 
both agencies' standards.
---------------------------------------------------------------------------

    \105\ 49 U.S.C. 32902(a)(3)(A).
    \106\ 69 FR 38958 (June 29, 2004).
    \107\ 76 FR 57106, 57162-64, (Sept. 15, 2011).
---------------------------------------------------------------------------

    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy and CO2 emissions for CAFE 
and CO2 emissions standards, respectively), the level of 
which depends on the vehicle's attribute (for this proposal, footprint, 
as discussed below). Each manufacturers' fleet average standard is 
determined by the production-weighted \108\ average (for CAFE, harmonic 
average) of those targets.
---------------------------------------------------------------------------

    \108\ Production for sale in the United States.
---------------------------------------------------------------------------

    The agencies believe that an attribute-based standard is preferable 
to a single-industry-wide average standard in the context of CAFE and 
CO2 standards for several reasons. First, if the shape is 
chosen properly, every manufacturer is more likely to be required to 
continue adding more fuel efficient technology each year across their 
fleet, because the stringency of the compliance obligation will depend 
on the particular product mix of each manufacturer. Therefore a maximum 
feasible attribute-based standard will tend to require greater fuel 
savings and CO2 emissions reductions overall than would a 
maximum feasible flat standard (that is, a single mpg or CO2 
level applicable to every manufacturer).
    Second, depending on the attribute, attribute-based standards 
reduce the incentive for manufacturers to respond to CAFE and 
CO2 standards in ways harmful to safety.\109\ Because each 
vehicle model has its own target (based on the attribute chosen), 
properly fitted attribute-based standards provide little, if any, 
incentive to build smaller vehicles simply to meet a fleet-wide 
average, because the smaller vehicles will be subject to more stringent 
compliance targets.\110\
---------------------------------------------------------------------------

    \109\ The 2002 NAS Report described at length and quantified the 
potential safety problem with average fuel economy standards that 
specify a single numerical requirement for the entire industry. See 
2002 NAS Report at 5, finding 12. Ensuing analyses, including by 
NHTSA, support the fundamental conclusion that standards structured 
to minimize incentives to downsize all but the largest vehicles will 
tend to produce better safety outcomes than flat standards.
    \110\ Assuming that the attribute is related to vehicle size.
---------------------------------------------------------------------------

    Third, attribute-based standards provide a more equitable 
regulatory framework for different vehicle manufacturers.\111\ A single 
industry-wide average standard imposes disproportionate cost burdens 
and compliance difficulties on the manufacturers that need to change 
their product plans to meet the standards, and puts no obligation on 
those manufacturers that have no need to change their plans. As 
discussed above, attribute-based standards help to spread the 
regulatory cost burden for fuel economy more broadly across all of the 
vehicle manufacturers within the industry.
---------------------------------------------------------------------------

    \111\ Id. at 4-5, finding 10.
---------------------------------------------------------------------------

    Fourth, attribute-based standards better respect economic 
conditions and consumer choice, as compared to single-value standards. 
A flat, or single value standard, encourages a certain vehicle size 
fleet mix by creating incentives for manufacturers to use vehicle 
downsizing as a compliance strategy. Under a footprint-based standard, 
manufacturers are required to invest in technologies that improve the 
fuel economy of the vehicles they sell rather than shifting the product 
mix, because reducing the size of the vehicle is generally a less 
viable compliance strategy given that smaller vehicles have more 
stringent regulatory targets.
2. What attribute are the agencies proposing to use, and why?
    As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 
2011 CAFE rule, NHTSA and EPA are proposing to set CAFE and 
CO2 standards that are based on vehicle footprint, which has 
an observable correlation to fuel economy and emissions. There are 
several policy and technical reasons why NHTSA and EPA believe that 
footprint is the most appropriate attribute on which to base the 
standards, even though some other vehicle attributes (notably curb 
weight) are better correlated to fuel economy and emissions.
    First, in the agencies' judgment, from the standpoint of vehicle 
safety, it is important that the CAFE and CO2 standards be 
set in a way that does not encourage manufacturers to respond by 
selling vehicles that are in any way less safe. While NHTSA's research 
of historical crash data also indicates that reductions in vehicle mass 
that are accompanied by reductions in vehicle footprint tend to 
compromise vehicle safety, footprint-based standards provide an 
incentive to use advanced lightweight materials and structures that 
would be discouraged by weight-based

[[Page 74913]]

standards, because manufacturers can use them to improve a vehicle's 
fuel economy and CO2 emissions without their use necessarily 
resulting in a change in the vehicle's fuel economy and emissions 
targets.
    Further, although we recognize that weight is better correlated 
with fuel economy and CO2 emissions than is footprint, we 
continue to believe that there is less risk of ``gaming'' (changing the 
attribute(s) to achieve a more favorable target) by increasing 
footprint under footprint-based standards than by increasing vehicle 
mass under weight-based standards--it is relatively easy for a 
manufacturer to add enough weight to a vehicle to decrease its 
applicable fuel economy target a significant amount, as compared to 
increasing vehicle footprint. We also continue to agree with concerns 
raised in 2008 by some commenters on the MY 2011 CAFE rulemaking that 
there would be greater potential for gaming under multi-attribute 
standards, such as those that also depend on weight, torque, power, 
towing capability, and/or off-road capability. The agencies agree with 
the assessment first presented in NHTSA's MY 2011 CAFE final rule \112\ 
that the possibility of gaming is lowest with footprint-based 
standards, as opposed to weight-based or multi-attribute-based 
standards. Specifically, standards that incorporate weight, torque, 
power, towing capability, and/or off-road capability in addition to 
footprint would not only be more complex, but by providing degrees of 
freedom with respect to more easily-adjusted attributes, they could 
make it less certain that the future fleet would actually achieve the 
average fuel economy and CO2 reduction levels projected by 
the agencies.
---------------------------------------------------------------------------

    \112\ See 74 FR at 14359 (Mar. 30, 2009).
---------------------------------------------------------------------------

    The agencies recognize that based on economic and consumer demand 
factors that are external to this rule, the distribution of footprints 
in the future may be different (either smaller or larger) than what is 
projected in this rule. However, the agencies continue to believe that 
there will not be significant shifts in this distribution as a direct 
consequence of this proposed rule. The agencies also recognize that 
some international attribute-based standards use attributes other than 
footprint and that there could be benefits for a number of 
manufacturers if there was greater international harmonization of fuel 
economy and GHG standards for light-duty vehicles, but this is largely 
a question of how stringent standards are and how they are tested and 
enforced. It is entirely possible that footprint-based and weight-based 
systems can coexist internationally and not present an undue burden for 
manufacturers if they are carefully crafted. Different countries or 
regions may find different attributes appropriate for basing standards, 
depending on the particular challenges they face--from fuel prices, to 
family size and land use, to safety concerns, to fleet composition and 
consumer preference, to other environmental challenges besides climate 
change. The agencies anticipate working more closely with other 
countries and regions in the future to consider how to address these 
issues in a way that least burdens manufacturers while respecting each 
country's need to meet its own particular challenges.
    The agencies continue to find that footprint is the most 
appropriate attribute upon which to base the proposed standards, but 
recognizing strong public interest in this issue, we seek comment on 
whether the agencies should consider setting standards for the final 
rule based on another attribute or another combination of attributes. 
If commenters suggest that the agencies should consider another 
attribute or another combination of attributes, the agencies 
specifically request that the commenters address the concerns raised in 
the paragraphs above regarding the use of other attributes, and explain 
how standards should be developed using the other attribute(s) in a way 
that contributes more to fuel savings and CO2 reductions 
than the footprint-based standards, without compromising safety.
3. What mathematical functions have the agencies previously used, and 
why?
a. NHTSA in MY 2008 and MY 2011 CAFE (constrained logistic)
    For the MY 2011 CAFE rule, NHTSA estimated fuel economy levels 
after normalization for differences in technology, but did not make 
adjustments to reflect other vehicle attributes (e.g., power-to-weight 
ratios).\113\ Starting with the technology adjusted passenger car and 
light truck fleets, NHTSA used minimum absolute deviation (MAD) 
regression without sales weighting to fit a logistic form as a starting 
point to develop mathematical functions defining the standards. NHTSA 
then identified footprints at which to apply minimum and maximum values 
(rather than letting the standards extend without limit) and transposed 
these functions vertically (i.e., on a gpm basis, uniformly downward) 
to produce the promulgated standards. In the preceding rule, for MYs 
2008-2011 light truck standards, NHTSA examined a range of potential 
functional forms, and concluded that, compared to other considered 
forms, the constrained logistic form provided the expected and 
appropriate trend (decreasing fuel economy as footprint increases), but 
avoided creating ``kinks'' the agency was concerned would provide 
distortionary incentives for vehicles with neighboring footprints.\114\
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    \113\ See 74 FR 14196, 14363-14370 (Mar. 30, 2009) for NHTSA 
discussion of curve fitting in the MY 2011 CAFE final rule.
    \114\ See 71 FR 17556, 17609-17613 (Apr. 6, 2006) for NHTSA 
discussion of ``kinks'' in the MYs 2008-2011 light truck CAFE final 
rule (there described as ``edge effects''). A ``kink,'' as used 
here, is a portion of the curve where a small change in footprint 
results in a disproportionally large change in stringency.
---------------------------------------------------------------------------

b. MYs 2012-2016 Light Duty GHG/CAFE (constrained/piecewise linear)
    For the MYs 2012-2016 rules, NHTSA and EPA re-evaluated potential 
methods for specifying mathematical functions to define fuel economy 
and GHG standards. The agencies concluded that the constrained logistic 
form, if applied to post-MY 2011 standards, would likely contain a 
steep mid-section that would provide undue incentive to increase the 
footprint of midsize passenger cars.\115\ The agencies judged that a 
range of methods to fit the curves would be reasonable, and used a 
minimum absolute deviation (MAD) regression without sales weighting on 
a technology-adjusted car and light truck fleet to fit a linear 
equation. This equation was used as a starting point to develop 
mathematical functions defining the standards as discussed above. The 
agencies then identified footprints at which to apply minimum and 
maximum values (rather than letting the standards extend without limit) 
and transposed these constrained/piecewise linear functions vertically 
(i.e., on a gpm or CO2 basis, uniformly downward) to produce 
the fleetwide fuel economy and CO2 emission levels for cars 
and light trucks described in the final rule.\116\
---------------------------------------------------------------------------

    \115\ 75 FR at 25362.
    \116\ See generally 74 FR at 49491-96; 75 FR at 25357-62.
---------------------------------------------------------------------------

4. How have the agencies changed the mathematical functions for the 
proposed MYs 2017-2025 standards, and why?
    By requiring NHTSA to set CAFE standards that are attribute-based 
and defined by a mathematical function, Congress appears to have wanted 
the post-EISA standards to be data-driven--a mathematical function 
defining the standards, in order to be ``attribute-based,'' should 
reflect the observed relationship in the data between the

[[Page 74914]]

attribute chosen and fuel economy.\117\ EPA is also proposing to set 
attribute-based CO2 standards defined by similar 
mathematical functions, for the reasonable technical and policy grounds 
discussed below and in section II of the preamble to the proposed rule, 
and which supports a harmonization with the CAFE standards.
---------------------------------------------------------------------------

    \117\ A mathematical function can be defined, of course, that 
has nothing to do with the relationship between fuel economy and the 
chosen attribute--the most basic example is an industry-wide 
standard defined as the mathematical function average required fuel 
economy = X, where X is the single mpg level set by the agency. Yet 
a standard that is simply defined as a mathematical function that is 
not tied to the attribute(s) would not meet the requirement of EISA.
---------------------------------------------------------------------------

    The relationship between fuel economy (and GHG emissions) and 
footprint, though directionally clear (i.e., fuel economy tends to 
decrease and CO2 emissions tend to increase with increasing 
footprint), is theoretically vague and quantitatively uncertain; in 
other words, not so precise as to a priori yield only a single possible 
curve.\118\ There is thus a range of legitimate options open to the 
agencies in developing curve shapes. The agencies may of course 
consider statutory objectives in choosing among the many reasonable 
alternatives. For example, curve shapes that might have some 
theoretical basis could lead to perverse outcomes contrary to the 
intent of the statutes to conserve energy and protect human health and 
the environment.\119\ Thus, the decision of how to set the target 
curves cannot always be just about most ``clearly'' using a 
mathematical function to define the relationship between fuel economy 
and the attribute; it often has to have a normative aspect, where the 
agencies adjust the function that would define the relationship in 
order to avoid perverse results, improve equity of burden across 
manufacturers, preserve consumer choice, etc. This is true both for the 
decisions that guide the mathematical function defining the sloped 
portion of the target curves, and for the separate decisions that guide 
the agencies' choice of ``cutpoints'' (if any) that define the fuel 
economy/CO2 levels and footprints at each end of the curves 
where the curves become flat. Data informs these decisions, but how the 
agencies define and interpret the relevant data, and then the choice of 
methodology for fitting a curve to the data, must include a 
consideration of both technical data and policy goals.
---------------------------------------------------------------------------

    \118\ In fact, numerous manufacturers have confidentially shared 
with the agencies what they describe as ``physics based'' curves, 
with each OEM showing significantly different shapes, and footprint 
relationships. The sheer variety of curves shown to the agencies 
further confirm the lack of an underlying principle of ``fundamental 
physics'' driving the relationship between CO2 emission 
or fuel consumption and footprint, and the lack of an underlying 
principle to dictate any outcome of the agencies' establishment of 
footprint-based standards.
    \119\ For example, if the agencies set weight-based standards 
defined by a steep function, the standards might encourage 
manufacturers to keep adding weight to their vehicles to obtain less 
stringent targets.
---------------------------------------------------------------------------

    The next sections examine the policy concerns that the agencies 
considered in developing the proposed target curves that define the 
proposed MYs 2017-2025 CAFE and CO2 standards, new technical 
work (expanding on similar analyses performed by NHTSA when the agency 
proposed MY 2011-2015 standards, and by both agencies during 
consideration of options for MY 2012-2016 CAFE and GHG standards) that 
was completed in the process of reexamining potential mathematical 
functions, how the agencies have defined the data, and how the agencies 
explored statistical curve-fitting methodologies in order to arrive at 
proposed curves.
5. What are the agencies proposing for the MYs 2017-2025 curves?
    The proposed mathematical functions for the proposed MYs 2017-2025 
standards are somewhat changed from the functions for the MYs 2012-2016 
standards, in response to comments received from stakeholders and in 
order to address technical concerns and policy goals that the agencies 
judge more significant in this 9-year rulemaking than in the prior one, 
which only included 5 years. This section discusses the methodology the 
agencies selected as, at this time, best addressing those technical 
concerns and policy goals, given the various technical inputs to the 
agencies' current analyses. Below the agencies discuss how the agencies 
determined the cutpoints and the flat portions of the MYs 2017-2025 
target curves. We also note that both of these sections address only 
how the target curves were fit to fuel consumption and CO2 
emission values determined using the city and highway test procedures, 
and that in determining respective regulatory alternatives, the 
agencies made further adjustments to the resultant curves in order to 
account for adjustments for improvements to mobile air conditioners.
    Thus, recognizing that there are many reasonable statistical 
methods for fitting curves to data points that define vehicles in terms 
of footprint and fuel economy, the agencies have chosen for this 
proposed rule to fit curves using an ordinary least-squares 
formulation, on sales-weighted data, using a fleet that has had 
technology applied, and after adjusting the data for the effects of 
weight-to-footprint, as described below. This represents a departure 
from the statistical approach for fitting the curves in MYs 2012-2016, 
as explained in the next section. The agencies considered a wide 
variety of reasonable statistical methods in order to better understand 
the range of uncertainty regarding the relationship between fuel 
consumption (the inverse of fuel economy), CO2 emission 
rates, and footprint, thereby providing a range within which decisions 
about standards would be potentially supportable.
a. What concerns were the agencies looking to address that led them to 
change from the approach used for the MYs 2012-2016 curves?
    During the year and a half since the MYs 2012-2016 final rule was 
issued, NHTSA and EPA have received a number of comments from 
stakeholders on how curves should be fitted to the passenger car and 
light truck fleets. Some limited-line manufacturers have argued that 
curves should generally be flatter in order to avoid discouraging small 
vehicles, because steeper curves tend to result in more stringent 
targets for smaller vehicles. Most full-line manufacturers have argued 
that a passenger car curve similar in slope to the MY 2016 passenger 
car curve would be appropriate for future model years, but that the 
light truck curve should be revised to be less difficult for 
manufacturers selling the largest full-size pickup trucks. These 
manufacturers argued that the MY 2016 light truck curve was not 
``physics-based,'' and that in order for future tightening of standards 
to be feasible for full-line manufacturers, the truck curve for later 
model years should be steeper and extended further (i.e., made less 
stringent) into the larger footprints. The agencies do not agree that 
the MY 2016 light truck curve was somehow deficient in lacking a 
``physics basis,'' or that it was somehow overly stringent for 
manufacturers selling large pickups--manufacturers making these 
arguments presented no ``physics-based'' model to explain how fuel 
economy should depend on footprint.\120\ The same manufacturers 
indicated that they believed that the light truck standard should be 
somewhat steeper after MY 2016, primarily because, after more than ten 
years of progressive increases in the stringency of applicable CAFE 
standards, large pickups would be less capable of achieving further

[[Page 74915]]

improvements without compromising load carrying and towing capacity.
---------------------------------------------------------------------------

    \120\ See footnote 118.
---------------------------------------------------------------------------

    In developing the curve shapes for this proposed rule, the agencies 
were aware of the current and prior technical concerns raised by OEMs 
concerning the effects of the stringency on individual manufacturers 
and their ability to meet the standards with available technologies, 
while producing vehicles at a cost that allowed them to recover the 
additional costs of the technologies being applied. Although we 
continue to believe that the methodology for fitting curves for the 
MY2012-2016 standards was technically sound, we recognize 
manufacturers' technical concerns regarding their abilities to comply 
with a similarly shallow curve after MY2016 given the anticipated mix 
of light trucks in MYs 2017-2025. As in the MYs 2012-2016 rules, the 
agencies considered these concerns in the analysis of potential curve 
shapes. The agencies also considered safety concerns which could be 
raised by curve shapes creating an incentive for vehicle downsizing, as 
well as the potential loss to consumer welfare should vehicle upsizing 
be unduly disincentivized. In addition, the agencies sought to improve 
the balance of compliance burdens among manufacturers. Among the 
technical concerns and resultant policy trade-offs the agencies 
considered were the following:
     Flatter standards (i.e., curves) increase the risk that 
both the weight and size of vehicles will be reduced, compromising 
highway safety.
     Flatter standards potentially impact the utility of 
vehicles by providing an incentive for vehicle downsizing.
     Steeper footprint-based standards may incentivize vehicle 
upsizing, thus increasing the risk that fuel economy and greenhouse gas 
reduction benefits will be less than expected.
     Given the same industry-wide average required fuel economy 
or CO2 standard, flatter standards tend to place greater 
compliance burdens on full-line manufacturers.
     Given the same industry-wide average required fuel economy 
or CO2 standard, steeper standards tend to place greater 
compliance burdens on limited-line manufacturers (depending of course, 
on which vehicles are being produced).
     If cutpoints are adopted, given the same industry-wide 
average required fuel economy, moving small-vehicle cutpoints to the 
left (i.e., up in terms of fuel economy, down in terms of 
CO2 emissions) discourages the introduction of small 
vehicles, and reduces the incentive to downsize small vehicles in ways 
that would compromise highway safety.
     If cutpoints are adopted, given the same industry-wide 
average required fuel economy, moving large-vehicle cutpoints to the 
right (i.e., down in terms of fuel economy, up in terms of 
CO2 emissions) better accommodates the unique design 
requirements of larger vehicles--especially large pickups--and extends 
the size range over which downsizing is discouraged.
    All of these were policy goals that required trade-offs, and in 
determining the curves they also required balance against the comments 
from the OEMs discussed in the introduction to this section. 
Ultimately, the agencies do not agree that the MY 2017 target curves 
for this proposal, on a relative basis, should be made significantly 
flatter than the MY 2016 curve,\121\ as we believe that this would undo 
some of the safety-related incentives and balancing of compliance 
burdens among manufacturers--effects that attribute-based standards are 
intended to provide.
---------------------------------------------------------------------------

    \121\ While ``significantly'' flatter is subjective, the year 
over year change in curve shapes is discussed in greater detail in 
Section 0 and Chapter 2 of the joint TSD.
---------------------------------------------------------------------------

    Nonetheless, the agencies recognize full-line OEM concerns and have 
tentatively concluded that further increases in the stringency of the 
light truck standards will be more feasible if the light truck curve is 
made steeper than the MY 2016 truck curve and the right (large 
footprint) cut-point is extended over time to larger footprints. This 
conclusion is supported by the agencies' technical analyses of 
regulatory alternatives defined using the curves developed in the 
manner described below.
b. What methodologies and data did the agencies consider in developing 
the 2017-2025 curves?
    In considering how to address the various policy concerns discussed 
in the previous sections, the agencies revisited the data and performed 
a number of analyses using different combinations of the various 
statistical methods, weighting schemes, adjustments to the data and the 
addition of technologies to make the fleets less technologically 
heterogeneous. As discussed above, in the agencies' judgment, there is 
no single ``correct'' way to estimate the relationship between 
CO2 or fuel consumption and footprint--rather, each 
statistical result is based on the underlying assumptions about the 
particular functional form, weightings and error structures embodied in 
the representational approach. These assumptions are the subject of the 
following discussion. This process of performing many analyses using 
combinations of statistical methods generates many possible outcomes, 
each embodying different potentially reasonable combinations of 
assumptions and each thus reflective of the data as viewed through a 
particular lens. The choice of a standard developed by a given 
combination of these statistical methods is consequently a decision 
based upon the agencies' determination of how, given the policy 
objectives for this rulemaking and the agencies' MY 2008-based forecast 
of the market through MY 2025, to appropriately reflect the current 
understanding of the evolution of automotive technology and costs, the 
future prospects for the vehicle market, and thereby establish curves 
(i.e., standards) for cars and light trucks.
c. What information did the agencies use to estimate a relationship 
between fuel economy, CO2 and footprint?
    For each fleet, the agencies began with the MY 2008-based market 
forecast developed to support this proposal (i.e., the baseline fleet), 
with vehicles' fuel economy levels and technological characteristics at 
MY 2008 levels.\122\ The development, scope, and content of this market 
forecast is discussed in detail in Chapter 1 of the joint Technical 
Support Document supporting this rulemaking.
---------------------------------------------------------------------------

    \122\ While the agencies jointly conducted this analysis, the 
coefficients ultimately used in the slope setting analysis are from 
the CAFE model.
---------------------------------------------------------------------------

d. What adjustments did the agencies evaluate?
    The agencies believe one possible approach is to fit curves to the 
minimally adjusted data shown above (the approach still includes sales 
mix adjustments, which influence results of sales-weighted 
regressions), much as DOT did when it first began evaluating potential 
attribute-based standards in 2003.\123\ However, the agencies have 
found, as in prior rulemakings, that the data are so widely spread 
(i.e., when graphed, they fall in a loose ``cloud'' rather than tightly 
around an obvious line) that they indicate a relationship between 
footprint and CO2 and fuel consumption that is real but not 
particularly strong. Therefore, as discussed below, the agencies also 
explored possible adjustments that could help to explain and/or reduce 
the ambiguity of this relationship, or could help to produce policy 
outcomes the agencies judged to be more desirable.
---------------------------------------------------------------------------

    \123\ 68 FR 74920-74926.

---------------------------------------------------------------------------

[[Page 74916]]

i. Adjustment to reflect differences in technology
    As in prior rulemakings, the agencies consider technology 
differences between vehicle models to be a significant factor producing 
uncertainty regarding the relationship between CO2/fuel 
consumption and footprint. Noting that attribute-based standards are 
intended to encourage the application of additional technology to 
improve fuel efficiency and reduce CO2 emissions, the 
agencies, in addition to considering approaches based on the unadjusted 
engineering characteristics of MY 2008 vehicle models, therefore also 
considered approaches in which, as for previous rulemakings, technology 
is added to vehicles for purposes of the curve fitting analysis in 
order to produce fleets that are less varied in technology content.
    The agencies adjusted the baseline fleet for technology by adding 
all technologies considered, except for the most advanced high-BMEP 
(brake mean effective pressure) gasoline engines, diesel engines, 
strong HEVs, PHEVs, EVs, and FCVs. The agencies included 15 percent 
mass reduction on all vehicles.
ii. Adjustments reflecting differences in performance and ``density''
    For the reasons discussed above regarding revisiting the shapes of 
the curves, the agencies considered adjustments for other differences 
between vehicle models (i.e., inflating or deflating the fuel economy 
of each vehicle model based on the extent to which one of the vehicle's 
attributes, such as power, is higher or lower than average). 
Previously, NHTSA had rejected such adjustments because they imply that 
a multi-attribute standard may be necessary, and the agencies judged 
multi-attribute standard to be more subject to gaming than a footprint-
only standard.124 125 Having considered this issue again for 
purposes of this rulemaking, NHTSA and EPA conclude the need to 
accommodate in the target curves the challenges faced by manufacturers 
of large pickups currently outweighs these prior concerns. Therefore, 
the agencies also evaluated curve fitting approaches through which fuel 
consumption and CO2 levels were adjusted with respect to 
weight-to-footprint alone, and in combination with power-to-weight. 
While the agencies examined these adjustments for purposes of fitting 
curves, the agencies are not proposing a multi-attribute standard; the 
proposed fuel economy and CO2 targets for each vehicle are 
still functions of footprint alone. No adjustment would be used in the 
compliance process.
---------------------------------------------------------------------------

    \124\ For example, in comments on NHTSA's 2008 NPRM regarding MY 
2011-2015 CAFE standards, Porsche recommended that standards be 
defined in terms of a ``Summed Weighted Attribute'', wherein the 
fuel economy target would calculated as follows: target = f(SWA), 
where target is the fuel economy target applicable to a given 
vehicle model and SWA = footprint + torque 1/1.5 + weight 
1/2.5. (NHTSA-2008-0089-0174). While the standards the 
agencies are proposing for MY 2017-2025 are not multi-attributes, 
that is the target is only a function of footprint, we are proposing 
curve shapes that were developed considering more than one 
attribute.
    \125\ 74 FR 14359.
---------------------------------------------------------------------------

    The agencies also examined some differences between the technology-
adjusted car and truck fleets in order to better understand the 
relationship between footprint and CO2/fuel consumption in 
the agencies' MY 2008 based forecast. The agencies investigated the 
relationship between HP/WT and footprint in the agencies' MY2008-based 
market forecast. On a sales weighted basis, cars tend to become 
proportionally more powerful as they get larger. In contrast, there is 
a minimally positive relationship between HP/WT and footprint for light 
trucks, indicating that light trucks become only slightly more powerful 
as they get larger.
    This analysis, presented in chapter 2.4.1.2 of the agencies' joint 
TSD, indicated that vehicle performance (power-to-weight ratio) and 
``density'' (curb weight divided by footprint) are both correlated to 
fuel consumption (and CO2 emission rate), and that these 
vehicle attributes are also both related to vehicle footprint. Based on 
these relationships, the agencies explored adjusting the fuel economy 
and CO2 emission rates of individual vehicle models based on 
deviations from ``expected'' performance or weight/footprint at a given 
footprint; the agencies inflated fuel economy levels of vehicle models 
with higher performance and/or weight/footprint than the average of the 
fleet would indicate at that footprint, and deflated fuel economy 
levels with lower performance and/or weight. Previously, NHTSA had 
rejected such adjustments because they imply that a multi-attribute 
standard may be necessary, and the agency judged multi-attribute 
standard to be more subject to gaming than a footprint-only 
standard.126 127 While the agencies considered this 
technique for purposes of fitting curves, the agencies are not 
proposing a multi-attribute standard, as the proposed fuel economy and 
CO2 targets for each vehicle are still functions of 
footprint alone. No adjustment would be used in the compliance process.
---------------------------------------------------------------------------

    \126\ For example, in comments on NHTSA's 2008 NPRM regarding MY 
2011-2015 CAFE standards, Porsche recommended that standards be 
defined in terms of a ``Summed Weighted Attribute'', wherein the 
fuel economy target would calculated as follows: target = f(SWA), 
where target is the fuel economy target applicable to a given 
vehicle model and SWA = footprint + torque 1/1.5 + weight 
1/2.5. (NHTSA-2008-0089-0174). While the standards the 
agencies are proposing for MY 2017-2025 are not multi-attribute 
standards, that is the target is only a function of footprint, we 
are proposing curve shapes that were developed considering more than 
one attribute.
    \127\ 74 FR 14359.
---------------------------------------------------------------------------

    The agencies seek comment on the appropriateness of the adjustments 
as described in Chapter 2 of the joint TSD, particularly regarding 
whether these adjustments suggest that standards should be defined in 
terms of other attributes in addition to footprint, and whether they 
may encourage changes other than encouraging the application of 
technology to improve fuel economy and reduce CO2 emissions. 
The agencies also seek comment regarding whether these adjustments 
effectively ``lock in'' through MY 2025 relationships that were 
observed in MY 2008.
e. What statistical methods did the agencies evaluate?
    The above approaches resulted in three data sets each for (a) 
vehicles without added technology and (b) vehicles with technology 
added to reduce technology differences, any of which may provide a 
reasonable basis for fitting mathematical functions upon which to base 
the slope of the standard curves: (1) Vehicles without any further 
adjustments; (2) vehicles with adjustments reflecting differences in 
``density'' (weight/footprint); and (3) vehicles with adjustments 
reflecting differences in ``density,'' and adjustments reflecting 
differences in performance (power/weight). Using these data sets, the 
agencies tested a range of regression methodologies, each judged to be 
possibly reasonable for application to at least some of these data 
sets.
i. Regression Approach
    In the MYs 2012-2016 final rules, the agencies employed a robust 
regression approach (minimum absolute deviation, or MAD), rather than 
an ordinary least squares (OLS) regression.\128\ MAD is generally 
applied to mitigate the effect of outliers in a dataset, and thus was 
employed in that rulemaking as part of our interest in attempting to 
best represent the underlying technology. NHTSA had used OLS in early 
development of attribute-based CAFE

[[Page 74917]]

standards, but NHTSA (and then NHTSA and EPA) subsequently chose MAD 
instead of OLS for both the MY 2011 and the MYs 2012-2016 rulemakings. 
These decisions on regression technique were made both because OLS 
gives additional emphasis to outliers \129\ and because the MAD 
approach helped achieve the agencies' policy goals with regard to curve 
slope in those rulemakings.\130\ In the interest of taking a fresh look 
at appropriate regression methodologies as promised in the 2012-2016 
light duty rulemaking, in developing this proposal, the agencies gave 
full consideration to both OLS and MAD. The OLS representation, as 
described, uses squared errors, while MAD employs absolute errors and 
thus weights outliers less.
---------------------------------------------------------------------------

    \128\ See 75 FR at 25359.
    \129\ Id. at 25362-63.
    \130\ Id. at 25363.
---------------------------------------------------------------------------

    As noted, one of the reasons stated for choosing MAD over least 
square regression in the MYs 2012-2016 rulemaking was that MAD reduced 
the weight placed on outliers in the data. However, the agencies have 
further considered whether it is appropriate to classify these vehicles 
as outliers. Unlike in traditional datasets, these vehicles' 
performance is not mischaracterized due to errors in their measurement, 
a common reason for outlier classification. Being certification data, 
the chances of large measurement errors should be near zero, 
particularly towards high CO2 or fuel consumption. Thus, 
they can only be outliers in the sense that the vehicle designs are 
unlike those of other vehicles. These outlier vehicles may include 
performance vehicles, vehicles with high ground clearance, 4WD, or boxy 
designs. Given that these are equally legitimate on-road vehicle 
designs, the agencies concluded that it would appropriate to reconsider 
the treatment of these vehicles in the regression techniques.
    Based on these considerations as well as the adjustments discussed 
above, the agencies concluded it was not meaningful to run MAD 
regressions on gpm data that had already been adjusted in the manner 
described above. Normalizing already reduced the variation in the data, 
and brought outliers towards average values. This was the intended 
effect, so the agencies deemed it unnecessary to apply an additional 
remedy to resolve an issue that had already been addressed, but we seek 
comment on the use of robust regression techniques under such 
circumstances.
ii. Sales Weighting
    Likewise, the agencies reconsidered employing sales-weighting to 
represent the data. As explained below, the decision to sales weight or 
not is ultimately based upon a choice about how to represent the data, 
and not by an underlying statistical concern. Sales weighting is used 
if the decision is made to treat each (mass produced) unit sold as a 
unique physical observation. Doing so thereby changes the extent to 
which different vehicle model types are emphasized as compared to a 
non-sales weighted regression. For example, while total General Motors 
Silverado (332,000) and Ford F-150 (322,000) sales differ by less than 
10,000 in MY 2021 market forecast, 62 F-150s models and 38 Silverado 
models are reported in the agencies baselines. Without sales-weighting, 
the F-150 models, because there are more of them, are given 63 percent 
more weight in the regression despite comprising a similar portion of 
the marketplace and a relatively homogenous set of vehicle 
technologies.
    The agencies did not use sales weighting in the 2012-2016 
rulemaking analysis of the curve shapes. A decision to not perform 
sales weighting reflects judgment that each vehicle model provides an 
equal amount of information concerning the underlying relationship 
between footprint and fuel economy. Sales-weighted regression gives the 
highest sales vehicle model types vastly more emphasis than the lowest-
sales vehicle model types thus driving the regression toward the sales-
weighted fleet norm. For unweighted regression, vehicle sales do not 
matter. The agencies note that the light truck market forecast shows MY 
2025 sales of 218,000 units for Toyota's 2WD Sienna, and shows 66 model 
configurations with MY 2025 sales of fewer than 100 units. Similarly, 
the agencies' market forecast shows MY 2025 sales of 267,000 for the 
Toyota Prius, and shows 40 model configurations with MY2025 sales of 
fewer than 100 units. Sales-weighted analysis would give the Toyota 
Sienna and Prius more than a thousand times the consideration of many 
vehicle model configurations. Sales-weighted analysis would, therefore, 
cause a large number of vehicle model configurations to be virtually 
ignored in the regressions.\131\
---------------------------------------------------------------------------

    \131\ 75 FR at 25362 and n. 64.
---------------------------------------------------------------------------

    However, the agencies did note in the MYs 2012-2016 final rules 
that, ``sales weighted regression would allow the difference between 
other vehicle attributes to be reflected in the analysis, and also 
would reflect consumer demand.'' \132\ In reexamining the sales-
weighting for this analysis, the agencies note that there are low-
volume model types account for many of the passenger car model types 
(50 percent of passenger car model types account for 3.3 percent of 
sales), and it is unclear whether the engineering characteristics of 
these model types should equally determine the standard for the 
remainder of the market.
---------------------------------------------------------------------------

    \132\ 75 FR at 25632/3.
---------------------------------------------------------------------------

    In the interest of taking a fresh look at appropriate methodologies 
as promised in the last final rule, in developing this proposal, the 
agencies gave full consideration to both sales-weighted and unweighted 
regressions.
iii. Analyses Performed
    We performed regressions describing the relationship between a 
vehicle's CO2/fuel consumption and its footprint, in terms 
of various combinations of factors: initial (raw) fleets with no 
technology, versus after technology is applied; sales-weighted versus 
non-sales weighted; and with and without two sets of normalizing 
factors applied to the observations. The agencies excluded diesels and 
dedicated AFVs because the agencies anticipate that advanced gasoline-
fueled vehicles are likely to be dominant through MY 2025, based both 
on our own assessment of potential standards (see Sections III and IV 
below) as well as our discussions with large number of automotive 
companies and suppliers.
    Thus, the basic OLS regression on the initial data (with no 
technology applied) and no sales-weighting represents one perspective 
on the relation between footprint and fuel economy. Adding sales 
weighting changes the interpretation to include the influence of sales 
volumes, and thus steps away from representing vehicle technology 
alone. Likewise, MAD is an attempt to reduce the impact of outliers, 
but reducing the impact of outliers might perhaps be less 
representative of technical relationships between the variables, 
although that relationship may change over time in reality. Each 
combination of methods and data reflects a perspective, and the 
regression results simply reflect that perspective in a simple 
quantifiable manner, expressed as the coefficients determining the line 
through the average (for OLS) or the median (for MAD) of the data. It 
is left to policy makers to determine an appropriate perspective and to 
interpret the consequences of the various alternatives.
    We invite comments on the application of the weights as described

[[Page 74918]]

above, and the implications for interpreting the relationship between 
fuel efficiency (or CO2) and footprint.
f. What results did the agencies obtain, which methodology did the 
agencies choose for this proposal, and why is it reasonable?
    Both agencies analyzed the same statistical approaches. For 
regressions against data including technology normalization, NHTSA used 
the CAFE modeling system, and EPA used EPA's OMEGA model. The agencies 
obtained similar regression results, and have based today's joint 
proposal on those obtained by NHTSA. The draft Joint TSD Chapter 2 
contains a large set of illustrative of figures which show the range of 
curves determined by the possible combinations of regression technique, 
with and without sales weighting, with and without the application of 
technology, and with various adjustments to the gpm variable prior to 
running a regression.
    The choice among the alternatives presented in the draft Joint TSD 
Chapter 2 was to use the OLS formulation, on sales-weighted data, using 
a fleet that has had technology applied, and after adjusting the data 
for the effect of weight-to-footprint, as described above. The agencies 
believe that this represents a technically reasonable approach for 
purposes of developing target curves to define the proposed standards, 
and that it represents a reasonable trade-off among various 
considerations balancing statistical, technical, and policy matters, 
which include the statistical representativeness of the curves 
considered and the steepness of the curve chosen. The agencies judge 
the application of technology prior to curve fitting to provide a 
reasonable means--one consistent with the rule's objective of 
encouraging manufacturers to add technology in order to increase fuel 
economy--of reducing variation in the data and thereby helping to 
estimate a relationship between fuel consumption/CO2 and 
footprint.
    Similarly, for the agencies' current MY 2008-based market-forecast 
and the agencies' current estimates of future technology effectiveness, 
the inclusion of the weight-to-footprint data adjustment prior to 
running the regression also helps to improve the fit of the curves by 
reducing the variation in the data, and the agencies believe that the 
benefits of this adjustment for this proposed rule likely outweigh the 
potential that resultant curves might somehow encourage reduced load 
carrying capability or vehicle performance (note that the we are not 
suggesting that we believe these adjustments will reduce load carrying 
capability or vehicle performance). In addition to reducing the 
variability, the truck curve is also steepened, and the car curve 
flattened compared to curves fitted to sales weighted data that do not 
include these normalizations. The agencies agree with manufacturers of 
full-size pick-up trucks that in order to maintain towing and hauling 
utility, the engines on pick-up trucks must be more powerful, than 
their low ``density'' nature would statistically suggest based on the 
agencies' current MY2008-based market forecast and the agencies' 
current estimates of the effectiveness of different fuel-saving 
technologies. Therefore, it may be more equitable (i.e., in terms of 
relative compliance challenges faced by different light truck 
manufacturers) to adjust the slope of the curve defining fuel economy 
and CO2 targets.
    As described above, however, other approaches are also technically 
reasonable, and also represent a way of expressing the underlying 
relationships. The agencies plan to revisit the analysis for the final 
rule, after updating the underlying market forecast and estimates of 
technology effectiveness, and based on relevant public comments 
received. In addition, the agencies intend to update the technology 
cost estimates, which could alter the NPRM analysis results and 
consequently alter the balance of the trade-offs being weighed to 
determine the final curves.
g. Implications of the proposed slope compared to MY 2012-2016
    The proposed slope has several implications relative to the MY 2016 
curves, with the majority of changes on the truck curve. With the 
agencies' current MY2008-based market forecast and the agencies' 
current estimates of technology effectiveness, the combination of sales 
weighting and WT/FP normalization produced a car curve slope similar to 
that finalized in the MY 2012-2016 final rulemaking (4.7 g/mile in MY 
2016, vs. 4.5 g/mile proposed in MY 2017). By contrast, the truck curve 
is steeper in MY 2017 than in MY 2016 (4.0 g/mile in MY 2016 vs. 4.9 g/
mile in MY 2017). As discussed previously, a steeper slope relaxes the 
stringency of targets for larger vehicles relative to those for smaller 
vehicles, thereby shifting relative compliance burdens among 
manufacturers based on their respective product mix.
6. Once the agencies determined the appropriate slope for the sloped 
part, how did the agencies determine the rest of the mathematical 
function?
    The agencies continue to believe that without a limit at the 
smallest footprints, the function--whether logistic or linear--can 
reach values that would be unfairly burdensome for a manufacturer that 
elects to focus on the market for small vehicles; depending on the 
underlying data, an unconstrained form could result in stringency 
levels that are technologically infeasible and/or economically 
impracticable for those manufacturers that may elect to focus on the 
smallest vehicles. On the other side of the function, without a limit 
at the largest footprints, the function may provide no floor on 
required fuel economy. Also, the safety considerations that support the 
provision of a disincentive for downsizing as a compliance strategy 
apply weakly, if at all, to the very largest vehicles. Limiting the 
function's value for the largest vehicles thus leads to a function with 
an inherent absolute minimum level of performance, while remaining 
consistent with safety considerations.
    Just as for slope, in determining the appropriate footprint and 
fuel economy values for the ``cutpoints,'' the places along the curve 
where the sloped portion becomes flat, the agencies took a fresh look 
for purposes of this proposal, taking into account the updated market 
forecast and new assumptions about the availability of technologies. 
The next two sections discuss the agencies' approach to cutpoints for 
the passenger car and light truck curves separately, as the policy 
considerations for each vary somewhat.
a. Cutpoints for PC curve
    The passenger car fleet upon which the agencies have based the 
target curves for MYs 2017-2025 is derived from MY 2008 data, as 
discussed above. In MY 2008, passenger car footprints ranged from 36.7 
square feet, the Lotus Exige 5, to 69.3 square feet, the Daimler 
Maybach 62. In that fleet, several manufacturers offer small, sporty 
coupes below 41 square feet, such as the BMW Z4 and Mini, Honda S2000, 
Mazda MX-5 Miata, Porsche Carrera and 911, and Volkswagen New Beetle. 
Because such vehicles represent a small portion (less than 10 percent) 
of the passenger car market, yet often have performance, utility, and/
or structural characteristics that could make it technologically 
infeasible and/or economically impracticable for manufacturers focusing 
on such

[[Page 74919]]

vehicles to achieve the very challenging average requirements that 
could apply in the absence of a constraint, EPA and NHTSA are again 
proposing to cut off the sloped portion of the passenger car function 
at 41 square feet, consistent with the MYs 2012-2016 rulemaking. The 
agencies recognize that for manufacturers who make small vehicles in 
this size range, putting the cutpoint at 41 square feet creates some 
incentive to downsize (i.e., further reduce the size, and/or increase 
the production of models currently smaller than 41 square feet) to make 
it easier to meet the target. Putting the cutpoint here may also create 
the incentive for manufacturers who do not currently offer such models 
to do so in the future. However, at the same time, the agencies believe 
that there is a limit to the market for cars smaller than 41 square 
feet--most consumers likely have some minimum expectation about 
interior volume, among other things. The agencies thus believe that the 
number of consumers who will want vehicles smaller than 41 square feet 
(regardless of how they are priced) is small, and that the incentive to 
downsize to less than 41 square feet in response to this proposal, if 
present, will be at best minimal. On the other hand, the agencies note 
that some manufacturers are introducing mini cars not reflected in the 
agencies MY 2008-based market forecast, such as the Fiat 500, to the 
U.S. market, and that the footprint at which the curve is limited may 
affect the incentive for manufacturers to do so.
    Above 56 square feet, the only passenger car models present in the 
MY 2008 fleet were four luxury vehicles with extremely low sales 
volumes--the Bentley Arnage and three versions of the Rolls Royce 
Phantom. As in the MYs 2012-2016 rulemaking, NHTSA and EPA therefore 
are proposing again to cut off the sloped portion of the passenger car 
function at 56 square feet.
    While meeting with manufacturers prior to issuing the proposal, the 
agencies received comments from some manufacturers that, combined with 
slope and overall stringency, using 41 square feet as the footprint at 
which to cap the target for small cars would result in unduly 
challenging targets for small cars. The agencies do not agree. No 
specific vehicle need meet its target (because standards apply to fleet 
average performance), and maintaining a sloped function toward the 
smaller end of the passenger car market is important to discourage 
unsafe downsizing, the agencies are thus proposing to again ``cut off'' 
the passenger car curve at 41 square feet, notwithstanding these 
comments.
    The agencies seek comment on setting cutpoints for the MYs 2017-
2025 passenger car curves at 41 square feet and 56 square feet.
b. Cutpoints for LT curve
    The light truck fleet upon which the agencies have based the target 
curves for MYs 2017-2025, like the passenger car fleet, is derived from 
MY 2008 data, as discussed in Section 2.4 above. In MY 2008, light 
truck footprints ranged from 41.0 square feet, the Jeep Wrangler, to 
77.5 square feet, the Toyota Tundra. For consistency with the curve for 
passenger cars, the agencies are proposing to cut off the sloped 
portion of the light truck function at the same footprint, 41 square 
feet, although we recognize that no light trucks are currently offered 
below 41 square feet. With regard to the upper cutpoint, the agencies 
heard from a number of manufacturers during the discussions leading up 
to this proposal that the location of the cutpoint in the MYs 2012-2016 
rules, 66 square feet, meant that the same standard applied to all 
light trucks with footprints of 66 square feet or greater, and that in 
fact the targets for the largest light trucks in the later years of 
that rulemaking were extremely challenging. Those manufacturers 
requested that the agencies extend the cutpoint to a larger footprint, 
to reduce targets for the largest light trucks which represent a 
significant percentage of those manufacturers light truck sales. At the 
same time, in re-examining the light truck fleet data, the agencies 
concluded that aggregating pickup truck models in the MYs 2012-2016 
rule had led the agencies to underestimate the impact of the different 
pickup truck model configurations above 66 square feet on 
manufacturers' fleet average fuel economy and CO2 levels (as 
discussed immediately below). In disaggregating the pickup truck model 
data, the impact of setting the cutpoint at 66 square feet after model 
year 2016 became clearer to the agencies.
    In the agencies' view, there is legitimate basis for these 
comments. The agencies' market forecast includes about 24 vehicle 
configurations above 74 square feet with a total volume of about 50,000 
vehicles or less during any MY in the 2017-2025 time frame. While a 
relatively small portion of the overall truck fleet, for some 
manufacturers, these vehicles are non-trivial portion of sales. As 
noted above, the very largest light trucks have significant load-
carrying and towing capabilities that make it particularly challenging 
for manufacturers to add fuel economy-improving/CO2-reducing 
technologies in a way that maintains the full functionality of those 
capabilities.
    Considering manufacturer CBI and our estimates of the impact of the 
66 square foot cutpoint for future model years, the agencies have 
initially determined to adopt curves that transition to a different cut 
point. While noting that no specific vehicle need meet its target 
(because standards apply to fleet average performance), we believe that 
the information provided to us by manufacturers and our own analysis 
supports the gradual extension of the cutpoint for large light trucks 
in this proposal from 66 square feet in MY 2016 out to a larger 
footprint square feet before MY 2025.

[[Page 74920]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.034

    The agencies are proposing to phase in the higher cutpoint for the 
truck curve in order to avoid any backsliding from the MY 2016 
standard. A target that is feasible in one model year should never 
become less feasible in a subsequent model year--manufacturers should 
have no reason to remove fuel economy-improving/CO2-reducing 
technology from a vehicle once it has been applied. Put another way, 
the agencies are proposing to not allow ``curve crossing'' from one 
model year to the next. In proposing MYs 2011-2015 CAFE standards and 
promulgating MY 2011 standards, NHTSA proposed and requested comment on 
avoiding curve crossing, as an ``anti-backsliding measure.'' \133\ The 
MY 2016 2 cycle test curves are therefore a floor for the MYs 2017-2025 
curves. For passenger cars, which have minimal change in slope from the 
MY 2012-2016 rulemakings and no change in cut points, there are no 
curve crossing issues in the proposed standards.
---------------------------------------------------------------------------

    \133\ 74 Fed. Reg. at 14370 (Mar. 30, 2009).
---------------------------------------------------------------------------

    The minimum stringency determination was done using the two cycle 
curves. Stringency adjustments for air conditioning and other credits 
were calculated after curves that did not cross were determined in two 
cycle space. The year over year increase in these adjustments cause 
neither the GHG nor CAFE curves (with A/C) to contact the 2016 curves 
when charted.
7. Once the agencies determined the complete mathematical function 
shape, how did the agencies adjust the curves to develop the proposed 
standards and regulatory alternatives?
    The curves discussed above all reflect the addition of technology 
to individual vehicle models to reduce technology differences between 
vehicle models before fitting curves. This application of technology 
was conducted not to directly determine the proposed standards, but 
rather for purposes of technology adjustments, and set aside 
considerations regarding potential rates of application (i.e., phase-in 
caps), and considerations regarding economic implications of applying 
specific technologies to specific vehicle models. The following 
sections describe further adjustments to the curves discussed above, 
that affect both the shape of the curve, and the location of the curve, 
that helped the agencies determine curves that defined the proposed 
standards.
a. Adjusting for Year over Year Stringency
    As in the MYs 2012-2016 rules, the agencies developed curves 
defining regulatory alternatives for consideration by ``shifting'' 
these curves. For the MYs 2012-2016 rules, the agencies did so on an 
absolute basis, offsetting the fitted curve by the same value (in gpm 
or g/mi) at all footprints. In developing this proposal, the agencies 
have reconsidered the use of this approach, and have concluded that 
after MY 2016, curves should be offset on a relative basis--that is, by 
adjusting the entire gpm-based curve (and, equivalently, the 
CO2 curve) by the same percentage rather than the same 
absolute value. The agencies' estimates of the effectiveness of these 
technologies are all expressed in relative terms--that is, each 
technology (with the exception of A/C) is estimated to reduce fuel 
consumption (the inverse of fuel economy) and CO2 emissions 
by a specific percentage of

[[Page 74921]]

fuel consumption without the technology. It is, therefore, more 
consistent with the agencies' estimates of technology effectiveness to 
develop the proposed standards and regulatory alternatives by applying 
a proportional offset to curves expressing fuel consumption or 
emissions as a function of footprint. In addition, extended 
indefinitely (and without other compensating adjustments), an absolute 
offset would eventually (i.e., at very high average stringencies) 
produce negative (gpm or g/mi) targets. Relative offsets avoid this 
potential outcome. Relative offsets do cause curves to become, on a 
fuel consumption and CO2 basis, flatter at greater average 
stringencies; however, as discussed above, this outcome remains 
consistent with the agencies' estimates of technology effectiveness. In 
other words, given a relative decrease in average required fuel 
consumption or CO2 emissions, a curve that is flatter by the 
same relative amount should be equally challenging in terms of the 
potential to achieve compliance through the addition of fuel-saving 
technology.
    On this basis, and considering that the ``flattening'' occurs 
gradually for the regulatory alternatives the agencies have evaluated, 
the agencies tentatively conclude that this approach to offsetting the 
curves to develop year-by-year regulatory alternatives neither re-
creates a situation in which manufacturers are likely to respond to 
standards in ways that compromise highway safety, nor undoes the 
attribute-based standard's more equitable balancing of compliance 
burdens among disparate manufacturers. The agencies invite comment on 
these conclusions, and on any other means that might avoid the 
potential outcomes--in particular, negative fuel consumption and 
CO2 targets--discussed above.
b. Adjusting for anticipated improvements to mobile air conditioning 
systems
    The fuel economy values in the agencies' market forecast are based 
on the 2-cycle (i.e., city and highway) fuel economy test and 
calculation procedures that do not reflect potential improvements in 
air conditioning system efficiency, refrigerant leakage, or refrigerant 
Global Warming Potential (GWP). Recognizing that there are significant 
and cost effective potential air conditioning system improvements 
available in the rulemaking timeframe (discussed in detail in Chapter 5 
of the draft joint TSD), the agencies are increasing the stringency of 
the target curves based on the agencies' assessment of the capability 
of manufacturers to implement these changes. For the proposed CAFE 
standards and alternatives, an offset is included based on air 
conditioning system efficiency improvements, as these improvements are 
the only improvements that effect vehicle fuel economy. For the 
proposed GHG standards and alternatives, a stringency increase is 
included based on air conditioning system efficiency, leakage and 
refrigerant improvements. As discussed above in Chapter 5 of the join 
TSD, the air conditioning system improvements affect a vehicle's fuel 
efficiency or CO2 emissions performance as an additive 
stringency increase, as compared to other fuel efficiency improving 
technologies which are multiplicative. Therefore, in adjusting target 
curves for improvements in the air conditioning system performance, the 
agencies are adjusting the target curves by additive stringency 
increases (or vertical shifts) in the curves.
    For the GHG target curves, the offset for air conditioning system 
performance is being handled in the same manner as for the MY 2012-2016 
rules. For the CAFE target curves, NHTSA for the first time is 
proposing to account for potential improvements in air conditioning 
system performance. Using this methodology, the agencies first use a 
multiplicative stringency adjustment for the sloped portion of the 
curves to reflect the effectiveness on technologies other than air 
conditioning system technologies, creating a series of curve shapes 
that are ``fanned'' based on two-cycle performance. Then the curves are 
offset vertically by the air conditioning improvement by an equal 
amount at every point.

D. Joint Vehicle Technology Assumptions

    For the past four to five years, the agencies have been working 
together closely to follow the development of fuel consumption and GHG 
reducing technologies. Two major analyses have been published jointly 
by EPA and NHTSA: The Technical Support Document to support the MYs 
2012-2016 final rule and the 2010 Technical Analysis Report (which 
supported the 2010 Notice of Intent). The latter of these analyses was 
also done in conjunction with CARB. Both of these analyses have both 
been published within the past 18 months. As a result, much of the work 
is still relevant and we continue to rely heavily on these references. 
However, some technologies--and what we know about them--are changing 
so rapidly that the analysis supporting this proposal contains a 
considerable amount of new work on technologies included in this rule, 
some of which were included in prior rulemakings, and others that were 
not.
    Notably, we have updated our battery costing methodology 
significantly since the MYs 2012-2016 final rule and even relative to 
the 2010 TAR. We are now using a peer reviewed model developed by 
Argonne National Laboratory for the Department of Energy which provides 
us with more rigorous estimates for battery costs and allows us to 
estimate future costs specific to hybrids, plug-in hybrids and electric 
vehicles all of which have different battery design characteristics.
    We also have new cost data from more recently completed tear down 
and other cost studies by FEV which were not available in either the 
MYs 2012-2016 final rule or the 2010 TAR. These new studies analyzed a 
8-speed automatic transmission replacing 6-speed automatic 
transmission, a 8-speed dual clutch transmission replacing 6-speed dual 
clutch transmission, a power-split hybrid powertrain with an I4 engine 
replacing a conventional engine powertrain with V6 engine, a mild 
hybrid with stop-start technology and an I4 engine replacing a 
conventional I4 engine, and the Fiat Multi-Air engine technology. We 
discuss the new tear down studies in Section II.D.2 of this preamble. 
Based on this, we have updated some of the FEV-developed costs relative 
to what we used in the 2012-2016 final rule, although these costs are 
consistent with those used in the 2010 TAR. Furthermore, we have 
completely re-worked our estimated costs associated with mass reduction 
relative to both the MYs 2012-2016 final rule and the 2010 TAR.
    As would be expected given that some of our cost estimates were 
developed several years ago, we have also updated all of our base 
direct manufacturing costs to put them in terms of more recent dollars 
(2009 dollars for this proposal). We have also updated our methodology 
for calculating indirect costs associated with new technologies since 
both the MYs 2012-2016 final rule and the TAR. We continue to use the 
indirect cost multiplier (ICM) approach used in those analyses, but 
have made important changes to the calculation methodology--changes 
done in response to ongoing staff evaluation and public input.
    Lastly, we have updated many of the technologies' effectiveness 
estimates largely based on new vehicle simulation work conducted by 
Ricardo Engineering. This simulation work provides the effectiveness 
estimates for

[[Page 74922]]

a number of the technologies most heavily relied on in the agencies' 
analysis of potential standards for MYs 2017-2025.
    The agencies have also reviewed the findings and recommendations in 
the updated NAS report ``Assessment of Fuel Economy Technologies for 
Light-Duty Vehicles'' that was completed after the MYs 2012-2016 final 
rule was issued,\134\ and NHTSA has performed a sensitivity analysis 
(contained in its PRIA) to examine the impact of using some of the NAS 
cost and effectiveness estimates on the proposed standards.
---------------------------------------------------------------------------

    \134\ ``Assessment of Fuel Economy Technologies for Light-Duty 
Vehicles,'' National Research Council of the National Academies, 
June 2010.
---------------------------------------------------------------------------

    Each of these changes is discussed briefly in the remainder of this 
section and in much greater detail in Chapter 3 of the draft joint TSD. 
First we provide a brief summary of the technologies we have considered 
in this proposal before highlighting the above-mentioned items that are 
new for this proposal. We request comment on all aspects of our 
analysis as discussed here and detailed in the draft joint TSD.
1. What technologies did the Agencies Consider?
    For this proposal, the agencies project that manufacturers can add 
a variety of technologies to each of their vehicle models and or 
platforms in order to improve the vehicles' fuel economy and GHG 
performance. In order to analyze a variety of regulatory alternative 
scenarios, it is essential to have a thorough understanding of the 
technologies available to the manufacturers. This analysis includes an 
assessment of the cost, effectiveness, availability, development time, 
and manufacturability of various technologies within the normal 
redesign and refresh periods of a vehicle line (or in the design of a 
new vehicle). As we describe in the draft Joint TSD, when a technology 
can be applied can affect the cost as well as the technology 
penetration rates (or phase-in caps) that are projected in the 
analysis.
    The agencies considered dozens of vehicle technologies that 
manufacturers could use to improve the fuel economy and reduce 
CO2 emissions of their vehicles during the MYs 2017-2025 
timeframe. Many of the technologies considered are available today, are 
well known, and could be incorporated into vehicles once product 
development decisions are made. These are ``near-term'' technologies 
and are identical or very similar to those anticipated in the agencies' 
analyses of compliance strategies for the MYs 2012-2016 final rule. For 
this rulemaking, given its time frame, other technologies are also 
considered that are not currently in production, but that are beyond 
the initial research phase, and are under development and expected to 
be in production in the next 5-10 years. Examples of these technologies 
are downsized and turbocharged engines operating at combustion 
pressures even higher than today's turbocharged engines, and an 
emerging hybrid architecture combined with an 8 speed dual clutch 
transmission, a combination that is not available today. These are 
technologies which the agencies believe can, for the most part, be 
applied both to cars and trucks, and which are expected to achieve 
significant improvements in fuel economy and reductions in 
CO2 emissions at reasonable costs in the MYs 2017 to 2025 
timeframe. The agencies did not consider technologies that are 
currently in an initial stage of research because of the uncertainty 
involved in the availability and feasibility of implementing these 
technologies with significant penetration rates for this analysis. The 
agencies recognize that due to the relatively long time frame between 
the date of this proposal and 2025, it is very possible that new and 
innovative technologies will make their way into the fleet, perhaps 
even in significant numbers, that we have not considered in this 
analysis. We expect to reconsider such technologies as part of the mid-
term evaluation, as appropriate, and possibly could be used to generate 
credits under a number of the proposed flexibility and incentive 
programs provided in the proposed rules.
    The technologies considered can be grouped into four broad 
categories: Engine technologies; transmission technologies; vehicle 
technologies (such as mass reduction, tires and aerodynamic 
treatments); and electrification technologies (including hybridization 
and changing to full electric drive).\135\ The specific technologies 
within each broad group are discussed below. The list of technologies 
presented below is nearly identical to that presented in both the MYs 
2012-2016 final rule and the 2010 TAR, with the following new 
technologies added to the list since the last final rule: The P2 
hybrid, a newly emerging hybridization technology that was also 
considered in the 2010 TAR; continued improvements in gasoline engines, 
with greater efficiencies and downsizing; continued significant 
efficiency improvements in transmissions; and ongoing levels of 
improvement to some of the seemingly more basic technologies such as 
lower rolling resistance tires and aerodynamic treatments, which are 
among the most cost effective technologies available for reducing fuel 
consumption and GHGs. Not included in the list below are technologies 
specific to air conditioning system improvements and off-cycle 
controls, which are presented in Section II.F of this NPRM and in 
Chapter 5 of the draft Joint TSD.
---------------------------------------------------------------------------

    \135\ NHTSA's analysis considers these technologies in five 
groups rather than four--hybridization is one category, and 
``electrification/accessories'' is another.
---------------------------------------------------------------------------

a. Types of Engine Technologies Considered
    Low-friction lubricants including low viscosity and advanced low 
friction lubricant oils are now available with improved performance. If 
manufacturers choose to make use of these lubricants, they may need to 
make engine changes and conduct durability testing to accommodate the 
lubricants. The costs in our analysis consider these engine changes and 
testing requirements. This level of low friction lubricants is expected 
to exceed 85 percent penetration by the 2017 MY.
    Reduction of engine friction losses can be achieved through low-
tension piston rings, roller cam followers, improved material coatings, 
more optimal thermal management, piston surface treatments, and other 
improvements in the design of engine components and subsystems that 
improve efficient engine operation. This level of engine friction 
reduction is expected to exceed 85 percent penetration by the 2017 MY.
    Advanced Low Friction Lubricant and Second Level of Engine Friction 
Reduction are new for this analysis. As technologies advance between 
now and the rulemaking timeframe, there will be further development in 
low friction lubricants and engine friction reductions. The agencies 
grouped the development in these two areas into a single technology and 
applied them for MY 2017 and beyond.
    Cylinder deactivation disables the intake and exhaust valves and 
prevents fuel injection into some cylinders during light-load 
operation. The engine runs temporarily as though it were a smaller 
engine which substantially reduces pumping losses.
    Variable valve timing alters the timing of the intake valves, 
exhaust valves, or both, primarily to reduce pumping losses, increase 
specific power, and control residual gases.
    Discrete variable valve lift increases efficiency by optimizing air 
flow over a broader range of engine operation which

[[Page 74923]]

reduces pumping losses. This is accomplished by controlled switching 
between two or more cam profile lobe heights.
    Continuous variable valve lift is an electromechanical or 
electrohydraulic system in which valve timing is changed as lift height 
is controlled. This yields a wide range of performance optimization and 
volumetric efficiency, including enabling the engine to be valve 
throttled.
    Stoichiometric gasoline direct-injection technology injects fuel at 
high pressure directly into the combustion chamber to improve cooling 
of the air/fuel charge as well as combustion quality within the 
cylinder, which allows for higher compression ratios and increased 
thermodynamic efficiency.
    Turbo charging and downsizing increases the available airflow and 
specific power level, allowing a reduced engine size while maintaining 
performance. Engines of this type use gasoline direct injection (GDI) 
and dual cam phasing. This reduces pumping losses at lighter loads in 
comparison to a larger engine. We continue to include an 18 bar brake 
mean effective pressure (BMEP) technology (as in the MYs 2012-2016 
final rule) and are also including both 24 bar BMEP and 27 bar BMEP 
technologies. The 24 bar BMEP technology would use a single-stage, 
variable geometry turbocharger which would provide a higher intake 
boost pressure available across a broader range of engine operation 
than conventional 18 bar BMEP engines. The 27 bar BMEP technology 
requires additional boost and thus would use a two-stage turbocharger 
necessitating use of cooled exhaust gas recirculation (EGR) as 
described below. The 18 bar BMEP technology is applied with 33 percent 
engine downsizing, 24 bar BMEP is applied with 50 percent engine 
downsizing, and 27 bar BMEP is applied with 56 percent engine 
downsizing.
    Cooled exhaust-gas recirculation (EGR) reduces the incidence of 
knocking combustion with additional charge dilution and obviates the 
need for fuel enrichment at high engine power. This allows for higher 
boost pressure and/or compression ratio and further reduction in engine 
displacement and both pumping and friction losses while maintaining 
performance. Engines of this type use GDI and both dual cam phasing and 
discrete variable valve lift. The EGR systems considered in this 
assessment would use a dual-loop system with both high and low pressure 
EGR loops and dual EGR coolers. For this proposal, cooled EGR is 
considered to be a technology that can be added to a 24 bar BMEP engine 
and is an enabling technology for 27 bar BMEP engines.
    Diesel engines have several characteristics that give superior fuel 
efficiency, including reduced pumping losses due to lack of (or greatly 
reduced) throttling, high pressure direct injection of fuel, a 
combustion cycle that operates at a higher compression ratio, and a 
very lean air/fuel mixture relative to an equivalent-performance 
gasoline engine. This technology requires additional enablers, such as 
a NOx adsorption catalyst system or a urea/ammonia selective 
catalytic reduction system for control of NOx emissions 
during lean (excess air) operation.
b. Types of Transmission Technologies Considered
    Improved automatic transmission controls optimize the shift 
schedule to maximize fuel efficiency under wide ranging conditions and 
minimizes losses associated with torque converter slip through lock-up 
or modulation. The first level of controls is expected to exceed 85 
percent penetration by the 2017 MY.
    Shift optimization is a strategy whereby the engine and/or 
transmission controller(s) emulates a CVT by continuously evaluating 
all possible gear options that would provide the necessary tractive 
power and select the best gear ratio that lets the engine run in the 
most efficient operating zone.
    Six-, seven-, and eight-speed automatic transmissions are optimized 
by changing the gear ratio span to enable the engine to operate in a 
more efficient operating range over a broader range of vehicle 
operating conditions. While a six speed transmission application was 
most prevalent for the MYs 2012-2016 final rule, eight speed 
transmissions are expected to be readily available and applied in the 
MYs 2017 through 2025 timeframe.
    Dual clutch or automated shift manual transmissions are similar to 
manual transmissions, but the vehicle controls shifting and launch 
functions. A dual-clutch automated shift manual transmission (DCT) uses 
separate clutches for even-numbered and odd-numbered gears, so the next 
expected gear is pre-selected, which allows for faster and smoother 
shifting. The 2012-2016 final rule limited DCT applications to a 
maximum of 6-speeds. For this proposal we have considered both 6-speed 
and 8-speed DCT transmissions.
    Continuously variable transmission commonly uses V-shaped pulleys 
connected by a metal belt rather than gears to provide ratios for 
operation. Unlike manual and automatic transmissions with fixed 
transmission ratios, continuously variable transmissions can provide 
fully variable and an infinite number of transmission ratios that 
enable the engine to operate in a more efficient operating range over a 
broader range of vehicle operating conditions. The CVT is maintained 
for existing baseline vehicles and not considered for future vehicles 
in this proposal due to the availability of more cost effective 
transmission technologies.
    Manual 6-speed transmission offers an additional gear ratio, often 
with a higher overdrive gear ratio, than a 5-speed manual transmission.
    High Efficiency Gearbox (automatic, DCT or manual)--continuous 
improvement in seals, bearings and clutches, super finishing of gearbox 
parts, and development in the area of lubrication, all aimed at 
reducing frictional and other parasitic load in the system for an 
automatic or DCT type transmission.
c. Types of Vehicle Technologies Considered
    Lower-rolling-resistance tires have characteristics that reduce 
frictional losses associated with the energy dissipated mainly in the 
deformation of the tires under load, thereby improving fuel economy and 
reducing CO2 emissions. New for this proposal (and also 
marking an advance over low rolling resistance tires considered during 
the heavy duty greenhouse gas rulemaking, see 76 FR at 57207, 57229) is 
a second level of lower rolling resistance tires that reduce frictional 
losses even further. The first level of low rolling resistance tires 
will have 10 percent rolling resistance reduction while the 2nd level 
would have 20 percent rolling resistance reduction compared to 2008 
baseline vehicle. The first level of lower rolling resistance tires is 
expected to exceed 85 percent penetration by the 2017 MY.
    Low-drag brakes reduce the sliding friction of disc brake pads on 
rotors when the brakes are not engaged because the brake pads are 
pulled away from the rotors.
    Front or secondary axle disconnect for four-wheel drive systems 
provides a torque distribution disconnect between front and rear axles 
when torque is not required for the non-driving axle. This results in 
the reduction of associated parasitic energy losses.
    Aerodynamic drag reduction can be achieved via two approaches, 
either reducing the drag coefficients or reducing vehicle frontal area. 
To reduce the drag coefficient, skirts, air dams, underbody covers, and 
more aerodynamic side view mirrors can be

[[Page 74924]]

applied. In addition to the standard aerodynamic treatments, the 
agencies have included a second level of aerodynamic technologies which 
could include active grill shutters, rear visors, and larger under body 
panels. The first level of aero dynamic drag improvement is estimated 
to reduce aerodynamic drag by 10 percent relative to the baseline 2008 
vehicle while the second level would reduce aero dynamic drag by 20 
percent relative to 2008 baseline vehicles. The second level of 
aerodynamic technologies was not considered in the MYs 2012-2016 final 
rule.
    Mass Reduction can be achieved in many ways, such as material 
substitution, design optimization, part consolidation, improving 
manufacturing process, etc. The agencies applied mass reduction of up 
to 20 percent relative to MY 2008 levels in this NPRM compared to only 
10 percent in 2012-2016 final rule. The agencies also determined 
effectiveness values for hybrid, plug-in and electric vehicles based on 
net mass reduction, or the delta between the applied mass reduction 
(capped at 20 percent) and the added mass of electrification 
components. In assessing compliance strategies and in structuring the 
standards, the agencies only considered amounts of vehicle mass 
reduction that would result in what we estimated to be no adverse 
effect on overall fleet safety. The agencies have an extensive 
discussion of mass reduction technologies as well as the cost of mass 
reduction in chapter 3 of the draft joint TSD.
d. Types of Electrification/Accessory and Hybrid Technologies 
Considered
    Electric power steering (EPS)/Electro-hydraulic power steering 
(EHPS) is an electrically-assisted steering system that has advantages 
over traditional hydraulic power steering because it replaces a 
continuously operated hydraulic pump, thereby reducing parasitic losses 
from the accessory drive. Manufacturers have informed the agencies that 
full EPS systems are being developed for all light-duty vehicles, 
including large trucks. However, the agencies have applied the EHPS 
technology to large trucks and the EPS technology to all other light-
duty vehicles.
    Improved accessories (IACC) may include high efficiency 
alternators, electrically driven (i.e., on-demand) water pumps and 
cooling fans. This excludes other electrical accessories such as 
electric oil pumps and electrically driven air conditioner compressors. 
New for this proposal is a second level of IACC (IACC2) which consists 
of the IACC technologies and the addition of a mild regeneration 
strategy and a higher efficiency alternator. The first level of IACC 
improvements is expected to be at more than 85 percent penetration by 
the 2017MY.
    12-volt Stop-Start, sometimes referred to as idle-stop or 12-volt 
micro hybrid is the most basic hybrid system that facilitates idle-stop 
capability. These systems typically incorporate an enhanced performance 
battery and other features such as electric transmission and cooling 
pumps to maintain vehicle systems during idle-stop.
    Higher Voltage Stop-Start/Belt Integrated Starter Generator (BISG) 
sometimes referred to as a mild hybrid, provides idle-stop capability 
and uses a higher voltage battery with increased energy capacity over 
typical automotive batteries. The higher system voltage allows the use 
of a smaller, more powerful electric motor. This system replaces a 
standard alternator with an enhanced power, higher voltage, higher 
efficiency starter-alternator, that is belt driven and that can recover 
braking energy while the vehicle slows down (regenerative braking). 
This mild hybrid technology is not included by either agency as an 
enabling technology in the analysis supporting this proposal, although 
some automakers have expressed interest in possibly using the 
technology during the rulemaking time frame. EPA and NHTSA are 
providing incentives to encourage this and similar hybrid technologies 
on pick-up trucks in particular, as described in Section II.F, and the 
agencies are in the process of including this technology for the final 
rule analysis as we expand our understanding of the associated costs 
and limitations.
    Integrated Motor Assist (IMA)/Crank integrated starter generator 
(CISG) provides idle-stop capability and uses a high voltage battery 
with increased energy capacity over typical automotive batteries. The 
higher system voltage allows the use of a smaller, more powerful 
electric motor and reduces the weight of the wiring harness. This 
system replaces a standard alternator with an enhanced power, higher 
voltage, higher efficiency starter-alternator that is crankshaft 
mounted and can recover braking energy while the vehicle slows down 
(regenerative braking). The IMA technology is not included by either 
agency as an enabling technology in the analysis supporting this 
proposal, although it is included as a baseline technology because it 
exists in our 2008 baseline fleet.
    P2 Hybrid is a newly emerging hybrid technology that uses a 
transmission integrated electric motor placed between the engine and a 
gearbox or CVT, much like the IMA system described above except with a 
wet or dry separation clutch which is used to decouple the motor/
transmission from the engine. In addition, a P2 hybrid would typically 
be equipped with a larger electric machine. Disengaging the clutch 
allows all-electric operation and more efficient brake-energy recovery. 
Engaging the clutch allows efficient coupling of the engine and 
electric motor and, when combined with a DCT transmission, reduces 
gear-train losses relative to power-split or 2-mode hybrid systems.
    2-Mode Hybrid is a hybrid electric drive system that uses an 
adaptation of a conventional stepped-ratio automatic transmission by 
replacing some of the transmission clutches with two electric motors 
that control the ratio of engine speed to vehicle speed, while clutches 
allow the motors to be bypassed. This improves both the transmission 
torque capacity for heavy-duty applications and reduces fuel 
consumption and CO2 emissions at highway speeds relative to 
other types of hybrid electric drive systems. The 2-mode hybrid 
technology is not included by either agency as an enabling technology 
in the analysis supporting this proposal, although it is included as a 
baseline technology because it exists in our 2008 baseline fleet.
    Power-split Hybrid is a hybrid electric drive system that replaces 
the traditional transmission with a single planetary gearset and a 
motor/generator. This motor/generator uses the engine to either charge 
the battery or supply additional power to the drive motor. A second, 
more powerful motor/generator is permanently connected to the vehicle's 
final drive and always turns with the wheels. The planetary gear splits 
engine power between the first motor/generator and the drive motor to 
either charge the battery or supply power to the wheels. The power-
split hybrid technology is not included by either agency as an enabling 
technology in the analysis supporting this proposal, (the agencies 
evaluate the P2 hybrid technology discussed above where power-split 
hybrids might otherwise have been appropriate) although it is included 
as a baseline technology because it exists in our 2008 baseline fleet.
    Plug-in hybrid electric vehicles (PHEV) are hybrid electric 
vehicles with the means to charge their battery packs from an outside 
source of electricity (usually the electric grid). These

[[Page 74925]]

vehicles have larger battery packs with more energy storage and a 
greater capability to be discharged than other hybrid electric 
vehicles. They also use a control system that allows the battery pack 
to be substantially depleted under electric-only or blended mechanical/
electric operation and batteries that can be cycled in charge 
sustaining operation at a lower state of charge than is typical of 
other hybrid electric vehicles. These vehicles are sometimes referred 
to as Range Extended Electric Vehicles (REEV). In this MYs 2017-2025 
analysis, PHEVs with several all-electric ranges--both a 20 mile and a 
40 mile all-electric range--have been included as potential 
technologies.
    Electric vehicles (EV) are equipped with all-electric drive and 
with systems powered by energy-optimized batteries charged primarily 
from grid electricity. EVs with several ranges--75 mile, 100 mile and 
150 mile range--have been included as potential technologies.
e. Technologies Considered but Deemed ``Not Ready'' in the MYs 2017-
2025 Timeframe
    Fuel cell electric vehicles (FCEVs) utilize a full electric drive 
platform but consume electricity generated by an on-board fuel cell and 
hydrogen fuel. Fuel cells are electro-chemical devices that directly 
convert reactants (hydrogen and oxygen via air) into electricity, with 
the potential of achieving more than twice the efficiency of 
conventional internal combustion engines. High pressure gaseous 
hydrogen storage tanks are used by most automakers for FCEVs that are 
currently under development. The high pressure tanks are similar to 
those used for compressed gas storage in more than 10 million CNG 
vehicles worldwide, except that they are designed to operate at a 
higher pressure (350 bar or 700 bar vs. 250 bar for CNG). While we 
expect there will be some limited introduction of FCEVs into the market 
place in the time frame of this rule, we expect this introduction to be 
relatively small, and thus FCEVs are not considered in the modeling 
analysis conducted for this proposal.
    There are a number of other technologies that the agencies have not 
considered in their analysis, but may be considered for the final rule. 
These include HCCI, ``multi-air'', and camless valve actuation, and 
other advanced engines currently under development.
2. How did the agencies determine the costs of each of these 
technologies?
    As noted in the introduction to this section, most of the direct 
cost estimates for technologies carried over from the MYs 2012-2016 
final rule and subsequently used in this proposal are fundamentally 
unchanged since the MYs 2012-2016 final rule analysis and/or the 2010 
TAR. We say ``fundamentally'' unchanged since the basis of the direct 
manufacturing cost estimates have not changed; however, the costs have 
been updated to more recent dollars, the learning effects have resulted 
in further cost reductions for some technologies, the indirect costs 
are calculated using a modified methodology and the impact of long-term 
ICMs is now present during the rulemaking timeframe. Besides these 
changes, there are also some other notable changes to the costs used in 
previous analyses. We highlight these changes in Section II.D.2.a, 
below. We highlight the changes to the indirect cost methodology and 
adjustments to more recent dollars in Sections II.D.2.b and c. Lastly, 
we present some updated terminology used for our approach to estimating 
learning effects in an effort to eliminate confusion with our past 
terminology. This is discussed in Section II.D.2.d, below.
    The agencies note that the technology costs included in this 
proposal take into account only those associated with the initial build 
of the vehicle. Although comments were received to the MYs 2012-2016 
rulemaking that suggested there could be additional maintenance 
required with some new technologies (e.g., turbocharging, hybrids, 
etc.), and that additional maintenance costs could occur as a result, 
the agencies believe that it is equally possible that maintenance costs 
could decrease for some vehicles, especially when considering full 
electric vehicles (which lack routine engine maintenance) or the 
replacement of automatic transmissions with simpler dual-clutch 
transmissions. The agencies request comment on the possible maintenance 
cost impacts associated with this proposal, reminding potential 
commenters that increased warranty costs are already considered as part 
of the ICMs.
a. Direct Manufacturing Costs (DMC)
    For direct manufacturing costs (DMC) related to turbocharging, 
downsizing, gasoline direct injection, transmissions, as well as non-
battery-related costs on hybrid, plug-in hybrid and electric vehicles, 
the agencies have relied on costs derived from teardown studies. For 
battery related DMC for HEVs, PHEVs and EVs, the agencies have relied 
on the BatPaC model developed by Argonne National Laboratory for the 
Department of Energy. For mass reduction DMC, the agencies have relied 
on several studies as described in detail in the draft Joint TSD. We 
discuss each of these briefly here and in more detail in the draft 
joint TSD. For the majority of the other technologies considered in 
this proposal and described above, the agencies have relied on the 
2012-2016 final rule and sources described there for estimates of DMC.
i. Costs from Tear-down Studies
    As a general matter, the agencies believe that the best method to 
derive technology cost estimates is to conduct studies involving tear-
down and analysis of actual vehicle components. A ``tear-down'' 
involves breaking down a technology into its fundamental parts and 
manufacturing processes by completely disassembling actual vehicles and 
vehicle subsystems and precisely determining what is required for its 
production. The result of the tear-down is a ``bill of materials'' for 
each and every part of the relevant vehicle systems. This tear-down 
method of costing technologies is often used by manufacturers to 
benchmark their products against competitive products. Historically, 
vehicle and vehicle component tear-down has not been done on a large 
scale by researchers and regulators due to the expense required for 
such studies. While tear-down studies are highly accurate at costing 
technologies for the year in which the study is intended, their 
accuracy, like that of all cost projections, may diminish over time as 
costs are extrapolated further into the future because of uncertainties 
in predicting commodities (and raw material) prices, labor rates, and 
manufacturing practices. The projected costs may be higher or lower 
than predicted.
    Over the past several years, EPA has contracted with FEV, Inc. and 
its subcontractor Munro & Associates, to conduct tear-down cost studies 
for a number of key technologies evaluated by the agencies in assessing 
the feasibility of future GHG and CAFE standards. The analysis 
methodology included procedures to scale the tear-down results to 
smaller and larger vehicles, and also to different technology 
configurations. FEV's methodology was documented in a report published 
as part of the MY 2012-2016 rulemaking, detailing the costing of the 
first tear-down conducted in this work (1 in the below 
list).\136\ This report was peer reviewed by experts in the industry 
and revised by FEV in response to the peer review

[[Page 74926]]

comments.\137\ Subsequent tear-down studies (2-5 in the below 
list) were documented in follow-up FEV reports made available in the 
public docket for the MY 2012-2016 rulemaking.\138\
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    \136\ U.S. EPA, ``Light-Duty Technology Cost Analysis Pilot 
Study,'' Contract No. EP-C-07-069, Work Assignment 1-3, December 
2009, EPA-420-R-09-020, Docket EPA-HQ-OAR-2009-0472-11282.
    \137\ FEV pilot study response to peer review document November 
6, 2009, is at EPA-HQ-OAR-2009-0472-11285.
    \138\ U.S. EPA, ``Light-duty Technology Cost Analysis--Report on 
Additional Case Studies,'' EPA-HQ-OAR-2009-0472-11604.
---------------------------------------------------------------------------

    Since then, FEV's work under this contract work assignment has 
continued. Additional cost studies have been completed and are 
available for public review.\139\ The most extensive study, performed 
after the MY 2012-2016 Final Rule, involved whole-vehicle tear-downs of 
a 2010 Ford Fusion powersplit hybrid and a conventional 2010 Ford 
Fusion. (The latter served as a baseline vehicle for comparison.) In 
addition to providing powersplit HEV costs, the results for individual 
components in these vehicles were subsequently used by FEV/Munro to 
cost another hybrid technology, the P2 hybrid, which employs similar 
hardware. This approach to costing P2 hybrids was undertaken because P2 
HEVs were not yet in volume production at the time of hardware 
procurement for tear-down. Finally, an automotive lithium-polymer 
battery was torn down and costed to provide supplemental battery 
costing information to that associated with the NiMH battery in the 
Fusion. This HEV cost work, including the extension of results to P2 
HEVs, has been extensively documented in a new report prepared by 
FEV.\140\ Because of the complexity and comprehensive scope of this HEV 
analysis, EPA commissioned a separate peer review focused exclusively 
on it. Reviewer comments generally supported FEV's methodology and 
results, while including a number of suggestions for improvement many 
of which were subsequently incorporated into FEV's analysis and final 
report. The peer review comments and responses are available in the 
rulemaking docket.141 142
---------------------------------------------------------------------------

    \139\ FEV, Inc., ``Light-Duty Technology Cost Analysis, Report 
on Additional Transmission, Mild Hybrid, and Valvetrain Technology 
Case Studies'', November 2011.
    \140\ FEV, Inc., ``Light-Duty Technology Cost Analysis, Power-
Split and P2 HEV Case Studies'', EPA-420-R-11-015, November 2011.
    \141\ ICF, ``Peer Review of FEV Inc. Report Light Duty 
Technology Cost Analysis, Power-Split and P2 Hybrid Electric Vehicle 
Case Studies'', EPA-420-R-11-016, November 2011.
    \142\ FEV and EPA, ``FEV Inc. Report `Light Duty Technology Cost 
Analysis, Power-Split and P2 Hybrid Electric Vehicle Case Studies', 
Peer Review Report--Response to Comments Document'', EPA-420-R-11-
017, November 2011.
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    Over the course of this work assignment, teardown-based studies 
have been performed thus far on the technologies listed below. These 
completed studies provide a thorough evaluation of the new 
technologies' costs relative to their baseline (or replaced) 
technologies.
    1. Stoichiometric gasoline direct injection (SGDI) and 
turbocharging with engine downsizing (T-DS) on a DOHC (dual overhead 
cam) I4 engine, replacing a conventional DOHC I4 engine.
    2. SGDI and T-DS on a SOHC (single overhead cam) on a V6 engine, 
replacing a conventional 3-valve/cylinder SOHC V8 engine.
    3. SGDI and T-DS on a DOHC I4 engine, replacing a DOHC V6 engine.
    4. 6-speed automatic transmission (AT), replacing a 5-speed AT.
    5. 6-speed wet dual clutch transmission (DCT) replacing a 6-speed 
AT.
    6. 8-speed AT replacing a 6-speed AT.
    7. 8-speed DCT replacing a 6-speed DCT.
    8. Power-split hybrid (Ford Fusion with I4 engine) compared to a 
conventional vehicle (Ford Fusion with V6). The results from this tear-
down were extended to address P2 hybrids. In addition, costs from 
individual components in this tear-down study were used by the agencies 
in developing cost estimates for PHEVs and EVs.
    9. Mild hybrid with stop-start technology (Saturn Vue with I4 
engine), replacing a conventional I4 engine. (Although results from 
this cost study are included in the rulemaking docket, they were not 
used by the agencies in this rulemaking's technical analyses.)
    10. Fiat Multi-Air engine technology. (Although results from this 
cost study are included in the rulemaking docket, they were not used by 
the agencies in this rulemaking's technical analyses.)
    Items 6 through 10 in the list above are new since the 2012-2016 
final rule.
    In addition, FEV and EPA extrapolated the engine downsizing costs 
for the following scenarios that were based on the above study cases:
    1. Downsizing a SOHC 2 valve/cylinder V8 engine to a DOHC V6.
    2. Downsizing a DOHC V8 to a DOHC V6.
    3. Downsizing a SOHC V6 engine to a DOHC 4 cylinder engine.
    4. Downsizing a DOHC 4 cylinder engine to a DOHC 3 cylinder engine.
    The agencies have relied on the findings of FEV for estimating the 
cost of the technologies covered by the tear-down studies.
ii. Costs of HEV, EV & PHEV
    The agencies have also reevaluated the costs for HEVs, PHEVs, and 
EVs since both the 2012-2016 final rule and the 2010 TAR. First, 
electrified vehicle technologies are developing rapidly and the 
agencies sought to capture results from the most recent analysis. 
Second, the 2012-2016 rule employed a single $/kWhr estimate and did 
not consider the specific vehicle and technology application for the 
battery when we estimated the cost of the battery. Specifically, 
batteries used in HEVs (high power density applications) versus EVs 
(high energy density applications) need to be considered appropriately 
to reflect the design differences, the chemical material usage 
differences and differences in $/kWhr as the power to energy ratio of 
the battery changes for different applications.
    To address these issues for this proposal, the agencies have done 
two things. First, EPA has developed a spreadsheet tool that was used 
to size the motor and battery based on the different road load of 
various vehicle classes. Second, the agencies have used a battery cost 
model developed by Argonne National Laboratory (ANL) for the Vehicle 
Technologies Program of the U.S. Department of Energy (DOE) Office of 
Energy Efficiency and Renewable Energy.\143\ The model developed by ANL 
allows users to estimate unique battery pack costs using user 
customized input sets for different hybridization applications, such as 
strong hybrid, PHEV and EV. The DOE has established long term industry 
goals and targets for advanced battery systems as it does for many 
energy efficient technologies. ANL was funded by DOE to provide an 
independent assessment of Li-ion battery costs because of ANL's 
expertise in the field as one of the primary DOE National Laboratories 
responsible for basic and applied battery energy storage technologies 
for future HEV, PHEV and EV applications. Since publication of the 2010 
TAR, ANL's battery cost model has been peer-reviewed and ANL has 
updated the model and documentation to incorporate suggestions from 
peer-reviewers, such as including a battery management system, a 
battery disconnect unit, a thermal management system, etc.\144\ In this 
proposal, NHTSA and EPA have used the recently revised version of this 
updated model.
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    \143\ ANL BatPac model Docket number EPA-HQ-OAR-2010-0799.
    \144\ Nelson, P.A., Santinit, D.J., Barnes, J. ``Factors 
Determining the Manufacturing Costs of Lithium-Ion Batteries for 
PHEVs,'' 24th World Battery, Hybrid and Fuel Cell Electric Vehicle 
Symposium and Exposition EVS-24, Stavenger, Norway, May 13-16, 2009 
(www.evs24.org).
---------------------------------------------------------------------------

    The agencies are using the ANL model as the basis for estimating 
large-

[[Page 74927]]

format lithium-ion batteries for this assessment for the following 
reasons. The model was developed by scientists at ANL who have 
significant experience in this area. The model uses a bill of materials 
methodology for developing cost estimates. The ANL model appropriately 
considers the vehicle application's power and energy requirements, 
which are two of the fundamental parameters when designing a lithium-
ion battery for an HEV, PHEV, or EV. The ANL model can estimate 
production costs based on user defined inputs for a range of production 
volumes. The ANL model's cost estimates, while generally lower than the 
estimates we received from the OEMs, are consistent with some of the 
supplier cost estimates that EPA received from large-format lithium-ion 
battery pack manufacturers. This includes data which was received from 
on-site visits done by the EPA in the 2008-2011 time frame. Finally, 
the ANL model has been described and presented in the public domain and 
does not rely upon confidential business information (which could not 
be reviewed by the public).
    The potential for future reductions in battery cost and 
improvements in battery performance relative to current batteries will 
play a major role in determining the overall cost and performance of 
future PHEVs and EVs. The U.S. Department of Energy manages major 
battery-related R&D programs and partnerships, and has done so for many 
years, including the ANL model utilized in this report. DOE has 
reviewed the battery cost projections underlying this proposal and 
supports the use of the ANL model for the purposes of this rulemaking.
    We have also estimated cost associated with in-home chargers and 
installation of in-home chargers expected to be necessary for PHEVs and 
EVs. Charger costs are covered in more detail in chapter 3 of the draft 
Joint TSD.
iii. Mass Reduction Costs
    The agencies have revised the costs for mass reduction from the MYs 
2012-2016 rule and the 2010 Technical Assessment Report. For this 
proposal, the agencies are relying on a wide assortment of sources from 
the literature as well as data provided from a number of OEMs. Based on 
this review, the agencies have estimated a new cost curve such that the 
costs increase as the levels of mass reduction increase. For the final 
rule the agencies will consider any new studies that become available, 
including two studies that the agencies are sponsoring and expect will 
be completed in time to inform the final rule. These studies are 
discussed in TSD chapter 3.
b. Indirect Costs (IC)
i. Markup Factors to Estimate Indirect Costs
    For this analysis, indirect costs are estimated by applying 
indirect cost multipliers (ICM) to direct cost estimates. ICMs were 
derived by EPA as a basis for estimating the impact on indirect costs 
of individual vehicle technology changes that would result from 
regulatory actions. Separate ICMs were derived for low, medium, and 
high complexity technologies, thus enabling estimates of indirect costs 
that reflect the variation in research, overhead, and other indirect 
costs that can occur among different technologies. ICMs were also 
applied in the MYs 2012-2016 rulemaking.
    Prior to developing the ICM methodology,\145\ EPA and NHTSA both 
applied a retail price equivalent (RPE) factor to estimate indirect 
costs. RPEs are estimated by dividing the total revenue of a 
manufacturer by the direct manufacturing costs. As such, it includes 
all forms of indirect costs for a manufacturer and assumes that the 
ratio applies equally for all technologies. ICMs are based on RPE 
estimates that are then modified to reflect only those elements of 
indirect costs that would be expected to change in response to a 
regulatory-induced technology change. For example, warranty costs would 
be reflected in both RPE and ICM estimates, while marketing costs might 
only be reflected in an RPE estimate but not an ICM estimate for a 
particular technology, if the new regulatory-induced technology change 
is not one expected to be marketed to consumers. Because ICMs 
calculated by EPA are for individual technologies, many of which are 
small in scale, they often reflect a subset of RPE costs; as a result, 
for low complexity technologies, the RPE is typically higher than the 
ICM. This is not always the case, as ICM estimates for particularly 
complex technologies, specifically hybrid technologies (for near term 
ICMs), and plug-in hybrid battery and full electric vehicle 
technologies (for near term and long term ICMs), reflect higher than 
average indirect costs, with the resulting ICMs for those technologies 
equaling or exceeding the averaged RPE for the industry.
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    \145\ The ICM methodology was developed by RTI International, 
under contract to EPA. The results of the RTI report were published 
in Alex Rogozhin, Michael Gallaher, Gloria Helfand, and Walter 
McManus, ``Using Indirect Cost Multipliers to Estimate the Total 
Cost of Adding New Technology in the Automobile Industry.'' 
International Journal of Production Economics 124 (2010): 360-368.
---------------------------------------------------------------------------

    There is some level of uncertainty surrounding both the ICM and RPE 
markup factors. The ICM estimates used in this proposed action group 
all technologies into four broad categories and treat them as if 
individual technologies within each of the categories (``low'', 
``medium'', ``high1'' and ``high2'' complexity) will have the same 
ratio of indirect costs to direct costs. This simplification means it 
is likely that the direct cost for some technologies within a category 
will be higher and some lower than the estimate for the category in 
general. More importantly, the ICM estimates have not been validated 
through a direct accounting of actual indirect costs for individual 
technologies. Rather, the ICM estimates were developed using adjustment 
factors developed in two separate occasions: the first, a consensus 
process, was reported in the RTI report; the second, a modified Delphi 
method, was conducted separately and reported in an EPA memo.\146\ Both 
these panels were composed of EPA staff members with previous 
background in the automobile industry; the memberships of the two 
panels overlapped but were not identical.\147\ The panels evaluated 
each element of the industry's RPE estimates and estimated the degree 
to which those elements would be expected to change in proportion to 
changes in direct manufacturing costs. The method and estimates in the 
RTI report were peer reviewed by three industry experts and 
subsequently by reviewers for the International Journal of Production 
Economics. RPEs themselves are inherently difficult to estimate because 
the accounting statements of manufacturers do not neatly categorize all 
cost elements as either direct or indirect costs. Hence, each 
researcher developing an RPE estimate must apply a certain amount of 
judgment to the allocation of the costs. Since empirical estimates of 
ICMs are ultimately derived from the same data used to measure RPEs, 
this affects both measures. However, the value of RPE has not been 
measured for specific technologies, or for groups of specific 
technologies. Thus applying a single

[[Page 74928]]

average RPE to any given technology by definition overstates costs for 
very simple technologies, or understates them for advanced 
technologies.
---------------------------------------------------------------------------

    \146\ Helfand, Gloria, and Sherwood, Todd. ``Documentation of 
the Development of Indirect Cost Multipliers for Three Automotive 
Technologies.'' Memorandum, Assessment and Standards Division, 
Office of Transportation and Air Quality, U.S. Environmental 
Protection Agency, August 2009.
    \147\ NHTSA staff participated in the development of the process 
for the second, modified Delphi panel, and reviewed the results as 
they were developed, but did not serve on the panel.
---------------------------------------------------------------------------

    In every recent GHG and fuel economy rulemaking proposal, we have 
requested comment on our ICM factors and whether it is most appropriate 
to use ICMs or RPEs. We have generally received little to no comment on 
the issue specifically, other than basic comments that the ICM values 
are too low. In addition, in the June 2010 NAS report, NAS noted that 
the under the initial ICMs, no technology would be assumed to have 
indirect costs as high as the average RPE. NRC found that ``RPE factors 
certainly do vary depending on the complexity of the task of 
integrating a component into a vehicle system, the extent of the 
required changes to other components, the novelty of the technology, 
and other factors. However, until empirical data derived by means of 
rigorous estimation methods are available, the committee prefers to use 
average markup factors.'' \148\ The committee also stated that ``The 
EPA (Rogozhin et al., 2009), however, has taken the first steps in 
attempting to analyze this problem in a way that could lead to a 
practical method of estimating technology-specific markup factors'' 
where ``this problem'' spoke to the issue of estimating technology-
specific markup factors and indirect cost multipliers.\149\
---------------------------------------------------------------------------

    \148\ NRC, Finding 3-2 at page 3-23.
    \149\ NRC at page 3-19.
---------------------------------------------------------------------------

    The agencies note that, since the committee completed their work, 
EPA has published its work in the Journal of Production Economics \150\ 
and has also published a memorandum furthering the development of 
ICMs,\151\ neither of which the committee had at their disposal. 
Further, having published two final rulemakings--the 2012-2016 light-
duty rule (see 75 FR 25324) and the more recent heavy-duty GHG rule 
(see 76 FR 57106)--as well as the 2010 TAR where ICMs served as the 
basis for all or most of the indirect costs, EPA believes that ICMs are 
indeed fully developed for regulatory purposes. As thinking has 
matured, we have adjusted our ICM factors such that they are slightly 
higher and, importantly, we have changed the way in which the factors 
are applied.
---------------------------------------------------------------------------

    \150\ Alex Rogozhin, Michael Gallaher, Gloria Helfand, and 
Walter McManus, ``Using Indirect Cost Multipliers to Estimate the 
Total Cost of Adding New Technology in the Automobile Industry.'' 
International Journal of Production Economics 124 (2010): 360-368.
    \151\ Helfand, Gloria, and Sherwood, Todd. ``Documentation of 
the Development of Indirect Cost Multipliers for Three Automotive 
Technologies.'' Memorandum, Assessment and Standards Division, 
Office of Transportation and Air Quality, U.S. Environmental 
Protection Agency, August 2009.
---------------------------------------------------------------------------

    The first change--increased ICM factors--has been done as a result 
of further thought among EPA and NHTSA that the ICM factors presented 
in the original RTI report for low and medium complexity technologies 
should no longer be used and that we should rely solely on the 
modified-Delphi values for these complexity levels. For that reason, we 
have eliminated the averaging of original RTI values with modified-
Delphi values and instead are relying solely on the modified-Delphi 
values for low and medium complexity technologies. The second change--
the way the factors are applied--results in the warranty portion of the 
indirect costs being applied as a multiplicative factor (thereby 
decreasing going forward as direct manufacturing costs decrease due to 
learning), and the remainder of the indirect costs being applied as an 
additive factor (thereby remaining constant year-over-year and not 
being reduced due to learning). This second change has a comparatively 
large impact on the resultant technology costs and, we believe, more 
appropriately estimates costs over time. In addition to these changes, 
a secondary-level change was also made as part of this ICM 
recalculation to ICMs. That change was to revise upward the RPE level 
reported in the original RTI report from an original value of 1.46 to 
1.5, to reflect the long term average RPE. The original RTI study was 
based on 2008 data. However, an analysis of historical RPE data 
indicates that, although there is year to year variation, the average 
RPE has remained roughly constant at 1.5. ICMs will be applied to 
future years' data and, therefore, NHTSA and EPA staffs believe that it 
would be appropriate to base ICMs on the historical average rather than 
a single year's result. Therefore, ICMs have been adjusted to reflect 
this average level. These changes to the ICMs and the methodology are 
described in greater detail in Chapter 3 of the draft Joint TSD.
ii. Stranded Capital
    Because the production of automotive components is capital-
intensive, it is possible for substantial capital investments in 
manufacturing equipment and facilities to become ``stranded'' (where 
their value is lost, or diminished). This would occur when the capital 
is rendered useless (or less useful) by some factor that forces a major 
change in vehicle design, plant operations, or manufacturer's product 
mix, such as a shift in consumer demand for certain vehicle types. It 
can also be caused by new standards that phase-in at a rate too rapid 
to accommodate planned replacement or redisposition of existing capital 
to other activities. The lost value of capital equipment is then 
amortized in some way over production of the new technology components.
    It is difficult to quantify accurately any capital stranding 
associated with new technology phase-ins under the proposed standards 
because of the iterative dynamic involved--that is, the new technology 
phase-in rate strongly affects the potential for additional cost due to 
stranded capital, but that additional cost in turn affects the degree 
and rate of phase-in for other individual competing technologies. In 
addition, such an analysis is very company-, factory-, and 
manufacturing process-specific, particularly in regard to finding 
alternative uses for equipment and facilities. Nevertheless, in order 
to account for the possibility of stranded capital costs, the agencies 
asked FEV to perform a separate bounding analysis of potential stranded 
capital costs associated with rapid phase-in of technologies due to new 
standards, using data from FEV's primary teardown-based cost 
analyses.\152\
---------------------------------------------------------------------------

    \152\ FEV, Inc., ``Potential Stranded Capital Analysis on EPA 
Light-Duty Technology Cost Analysis'', Contract No. EP-C-07-069 Work 
Assignment 3-3. November 2011.
---------------------------------------------------------------------------

    The assumptions made in FEV's stranded capital analysis with 
potential for major impacts on results are:
     All manufacturing equipment was bought brand new when the 
old technology started production (no carryover of equipment used to 
make the previous components that the old technology itself replaced).
     10-year normal production runs: Manufacturing equipment 
used to make old technology components is straight-line depreciated 
over a 10-year life.
     Factory managers do not optimize capital equipment phase-
outs (that is, they are assumed to routinely repair and replace 
equipment without regard to whether or not it will soon be scrapped due 
to adoption of new vehicle technology).
     Estimated stranded capital is amortized over 5 years of 
annual production at 450,000 units (of the new technology components). 
This annual production is identical to that assumed in FEV's primary 
teardown-based cost analyses. The 5-year recovery period is chosen to 
help ensure a conservative analysis; the actual recovery would of 
course vary greatly with market conditions.

[[Page 74929]]

    The stranded capital analysis was performed for three transmission 
technology scenarios, two engine technology scenarios, and one hybrid 
technology scenario. The methodology used by EPA in applying the 
results to the technology costs is described in Chapter 3.8.7 and 
Chapter 5.1 of EPA's draft RIA. The methodology used by NHTSA in 
applying the results to the technology costs is described in NHTSA's 
preliminary RIA section V.
c. Cost Adjustment to 2009 Dollars
    This simple change is to update any costs presented in earlier 
analyses to 2009 dollars using the GDP price deflator as reported by 
the Bureau of Economic Analysis on January 27, 2011. The factors used 
to update costs from 2007 and 2008 dollars to 2009 dollars are shown 
below. For the final rule, we are considering moving to 2010 dollars 
but, for this analysis, given the timing of conducting modeling runs 
and developing inputs to those runs, the factors for converting to 2010 
dollars were not yet available.
[GRAPHIC] [TIFF OMITTED] TP01DE11.035

d. Cost Effects Due to Learning
    For many of the technologies considered in this rulemaking, the 
agencies expect that the industry should be able to realize reductions 
in their costs over time as a result of ``learning effects,'' that is, 
the fact that as manufacturers gain experience in production, they are 
able to reduce the cost of production in a variety of ways. The 
agencies continue to apply learning effects in the same way as we did 
in both the MYs 2012-2016 final rule and in the 2010 TAR. However, we 
have employed some new terminology in an effort to eliminate some 
confusion that existed with our old terminology. This new terminology 
was described in the recent heavy-duty GHG final rule (see 76 FR 
57320). Our old terminology suggested we were accounting for two 
completely different learning effects--one based on volume production 
and the other based on time. This was not the case since, in fact, we 
were actually relying on just one learning phenomenon, that being the 
learning-by-doing phenomenon that results from cumulative production 
volumes.
    As a result, the agencies have also considered the impacts of 
manufacturer learning on the technology cost estimates by reflecting 
the phenomenon of volume-based learning curve cost reductions in our 
modeling using two algorithms depending on where in the learning cycle 
(i.e., on what portion of the learning curve) we consider a technology 
to be--``steep'' portion of the curve for newer technologies and 
``flat'' portion of the curve for more mature technologies. The 
observed phenomenon in the economic literature which supports 
manufacturer learning cost reductions are based on reductions in costs 
as production volumes increase with the highest absolute cost reduction 
occurring with the first doubling of production. The agencies use the 
terminology ``steep'' and ``flat'' portion of the curve to distinguish 
among newer technologies and more mature technologies, respectively, 
and how learning cost reductions are applied in cost analyses.
    Learning impacts have been considered on most but not all of the 
technologies expected to be used because some of the expected 
technologies are already used rather widely in the industry and, 
presumably, quantifiable learning impacts have already occurred. The 
agencies have applied the steep learning algorithm for only a handful 
of technologies considered to be new or emerging technologies such as 
PHEV and EV batteries which are experiencing heavy development and, 
presumably, rapid cost declines in coming years. For most technologies, 
the agencies have considered them to be more established and, hence, 
the agencies have applied the lower flat learning algorithm. For more 
discussion of the learning approach and the technologies to which each 
type of learning has been applied the reader is directed to Chapter 3 
of the draft Joint TSD. Note that, since the agencies had to project 
how learning will occur with new technologies over a long period of 
time, we request comments on the assumptions of learning costs and 
methodology. In particular, we are interested in input on the 
assumptions for advanced 27-bar BMEP cooled exhaust gas recirculation 
(EGR) engines, which are currently still in the experimental stage and 
not expected to be available in volume production until 2017. For our 
analysis, we have based estimates of the costs of this engine on 
current (or soon to be current) production technologies (e.g., gasoline 
direct injection fuel systems, engine downsizing, cooled EGR, 18-bar 
BMEP capable turbochargers), and assumed that, since learning (and the 
associated cost reductions) begins in 2012 for them that it also does 
for the similar technologies used in 27-bar BMEP engines. We seek 
comment on the appropriateness of this assumption.\153\
---------------------------------------------------------------------------

    \153\ EPA notes that our modeling projections for the proposed 
CO2 standards show a technology penetration rate of 2% in 
the 2021MY and 5% in the 2025MY for 27-bar BMEP engines and, thus, 
our cost estimates are not heavily reliant on this technology.
---------------------------------------------------------------------------

3. How did the agencies determine the effectiveness of each of these 
technologies?
    In 2007 EPA conducted a detailed vehicle simulation project to 
quantify the effectiveness of a multitude of technologies for the MYs 
2012-2016

[[Page 74930]]

rule (as well as the 2010 NOI). This technical work was conducted by 
the global engineering consulting firm, Ricardo, Inc. and was peer 
reviewed and then published in 2008. For this current rule, EPA has 
conducted another peer reviewed study with Ricardo to broaden the scope 
of the original project in order to expand the range of vehicle classes 
and technologies considered, consistent with a longer-term outlook 
through model years MYs 2017-2025. The extent of the project was vast, 
including hundreds of thousands of vehicle simulation runs. The results 
were, in turn, employed to calibrate and update EPA's lumped parameter 
model, which is used to quantify the synergies and dis-synergies 
associated with combining technologies together for the purposes of 
generating inputs for the agencies respective OMEGA and CAFE modeling.
    Additionally, there were a number of technologies that Ricardo did 
not model explicitly. For these, the agencies relied on a variety of 
sources in the literature. A few of the values are identical to those 
presented in the MYs 2012-2016 final rule, while others were updated 
based on the newer version of the lumped parameter model. More details 
on the Ricardo simulation, lumped parameter model, as well as the 
effectiveness for supplemental technologies are described in Chapter 3 
of the draft Joint TSD.
    The agencies note that the effectiveness values estimated for the 
technologies considered in the modeling analyses may represent average 
values, and do not reflect the virtually unlimited spectrum of possible 
values that could result from adding the technology to different 
vehicles. For example, while the agencies have estimated an 
effectiveness of 0.6 to 0.8 percent, depending on the vehicle subclass 
for low friction lubricants, each vehicle could have a unique 
effectiveness estimate depending on the baseline vehicle's oil 
viscosity rating. Similarly, the reduction in rolling resistance (and 
thus the improvement in fuel economy and the reduction in 
CO2 emissions) due to the application of low rolling 
resistance tires depends not only on the unique characteristics of the 
tires originally on the vehicle, but on the unique characteristics of 
the tires being applied, characteristics which must be balanced between 
fuel efficiency, safety, and performance. Aerodynamic drag reduction is 
much the same--it can improve fuel economy and reduce CO2 
emissions, but it is also highly dependent on vehicle-specific 
functional objectives. For purposes of the proposal, NHTSA and EPA 
believe that employing average values for technology effectiveness 
estimates, as adjusted depending on vehicle subclass, is an appropriate 
way of recognizing the potential variation in the specific benefits 
that individual manufacturers (and individual vehicles) might obtain 
from adding a fuel-saving technology.

E. Joint Economic and Other Assumptions

    The agencies' analysis of CAFE and GHG standards for the model 
years covered by this proposed rulemaking rely on a range of forecast 
information, estimates of economic variables, and input parameters. 
This section briefly describes the agencies' proposed estimates of each 
of these values. These values play a significant role in assessing the 
benefits of both CAFE and GHG standards.
    In reviewing these variables and the agencies' estimates of their 
values for purposes of this NPRM, NHTSA and EPA reconsidered comments 
that the agencies previously received on both the Interim Joint TAR and 
during the MYs 2012-2016 light duty vehicle rulemaking and also 
reviewed newly available literature. As a consequence, for today's 
proposal, the agencies are proposing to update some economic 
assumptions and parameter estimates, while retaining a majority of 
values consistent with the Interim Joint TAR and the MYs 2012-2016 
final rule. To review the parameters and assumptions the agencies used 
in the 2012-2016 final rule, please refer to 75 FR 25378 and Chapter 4 
of the Joint Technical Support Document that accompanied the final 
rule.\154\ The proposed values summarized below are discussed in 
greater detail in Chapter 4 of the joint TSD that accompanies this 
proposal and elsewhere in the preamble and respective RIAs. The 
agencies seek comment on all of the assumptions discussed below.
---------------------------------------------------------------------------

    \154\ See http://www.epa.gov/otaq/climate/regulations/420r10901.pdf.
---------------------------------------------------------------------------

     Costs of fuel economy-improving technologies--These inputs 
are discussed in summary form above and in more detail in the agencies' 
respective sections of this preamble, in Chapter 3 of the draft joint 
TSD, and in the agencies' respective RIAs. The technology direct 
manufacturing cost estimates used in this analysis are intended to 
represent manufacturers' direct costs for high-volume production of 
vehicles with these technologies in the year for which we state the 
cost is considered ``valid.'' Technology direct manufacturing cost 
estimates are fundamentally unchanged from those employed by the 
agencies in the 2012-2016 final rule, the heavy-duty truck rule (to the 
extent relevant), and TAR for most technologies, although revised costs 
are used for batteries, mass reduction, transmissions, and a few other 
technologies. Indirect costs are accounted for by applying near-term 
indirect cost multipliers ranging from 1.24 to 1.77 to the estimates of 
vehicle manufacturers' direct costs for producing or acquiring each 
technology, depending on the complexity of the technology and the time 
frame over which costs are estimated. These values are reduced to 1.19 
to 1.50 over the long run as some aspects of indirect costs decline. 
Indirect cost markup factors have been revised from previous 
rulemakings and the Interim Joint TAR to reflect the agencies current 
thinking regarding a number of issues. These changes are discussed in 
detail in Section II.D.2 of this preamble and in Chapter 3 of the draft 
joint TSD. Details of the agencies' technology cost assumptions and how 
they were derived can be found in Chapter 3 of the draft joint TSD.
     Potential opportunity costs of improved fuel economy--This 
issue addresses the possibility that achieving the fuel economy 
improvements required by alternative CAFE or GHG standards would 
require manufacturers to compromise the performance, carrying capacity, 
safety, or comfort of their vehicle models. If it did so, the resulting 
sacrifice in the value of these attributes to consumers would represent 
an additional cost of achieving the required improvements, and thus of 
manufacturers' compliance with stricter standards. Currently the 
agencies project that these vehicle attributes will not change as a 
result of this rule. Section II.C above and Chapter 2 of the draft 
joint TSD describes how the agency carefully selected an attribute-
based standard to minimize manufacturers' incentive to reduce vehicle 
capabilities. While manufacturers may choose to do this for other 
reasons, the agencies continue to believe that the rule itself will not 
result in such changes. Additionally, EPA and NHTSA have sought to 
include the cost of maintaining these attributes as part of the cost 
estimates for technologies that are included in the cost analysis for 
the proposal. For example, downsized engines are assumed to be 
turbocharged, so that they provide the same performance and utility 
even though they are smaller.\155\ Nonetheless, it is

[[Page 74931]]

possible that in some cases, the technology cost estimates may not 
include adequate allowance for the necessary efforts by manufacturers 
to maintain vehicle acceleration performance, payload, or utility while 
improving fuel economy and reducing GHG emissions. As described in 
Section III.D.3 and Section IV.G, there are two possible exceptions in 
cases where some vehicle types are converted to hybrid or full electric 
vehicles (EVs), but, in such cases, we believe that sufficient options 
would exist for consumers concerned about the possible loss of utility 
(e.g., they would purchase the non-hybridized version of the vehicle or 
not buy an EV) that welfare loss should not necessarily be assumed. 
Although consumer vehicle demand models can measure these effects, past 
analyses using such models have not produced consistent estimates of 
buyers' willingness-to-pay for higher fuel economy, and it is difficult 
to decide whether one data source, model specification, or estimation 
procedure is clearly preferred over another. Thus, the agencies seek 
comment on how to estimate explicitly the changes in vehicle buyers' 
choices and welfare from the combination of higher prices for new 
vehicle models, increases in their fuel economy, and any accompanying 
changes in vehicle attributes such as performance, passenger- and 
cargo-carrying capacity, or other dimensions of utility.
---------------------------------------------------------------------------

    \155\ The agencies do not believe that adding fuel-saving 
technology should preclude future improvements in performance, 
safety, or other attributes, though it is possible that the costs of 
these additions may be affected by the presence of fuel-saving 
technology.
---------------------------------------------------------------------------

     The on-road fuel economy ``gap''--Actual fuel economy 
levels achieved by light-duty vehicles in on-road driving fall somewhat 
short of their levels measured under the laboratory test conditions 
used by EPA to establish compliance with the proposed CAFE and GHG 
standards. The modeling approach in this proposal follows the 2012-2016 
final rule and the Interim Joint TAR. In calculating benefits of the 
program, the agencies estimate that actual on-road fuel economy 
attained by light-duty vehicles that operate on liquid fuels will be 20 
percent lower than published fuel economy ratings for vehicles that 
operate on liquid fuels. For example, if the measured CAFE fuel economy 
value of a light truck is 20 mpg, the on-road fuel economy actually 
achieved by a typical driver of that vehicle is expected to be 16 mpg 
(20*.80).\156\ Based on manufacturer confidential business information, 
as well as data derived from the 2006 EPA fuel economy label rule, the 
agencies use a 30 percent gap for consumption of wall electricity for 
electric vehicles and plug-in hybrid electric vehicles.\157\
---------------------------------------------------------------------------

    \156\ U.S. Environmental Protection Agency, Final Technical 
Support Document, Fuel Economy Labeling of Motor Vehicle Revisions 
to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017, 
December 2006.
    \157\ See 71 FR at 77887, and U.S. Environmental Protection 
Agency, Final Technical Support Document, Fuel Economy Labeling of 
Motor Vehicle Revisions to Improve Calculation of Fuel Economy 
Estimates, EPA420-R-06-017, December 2006 for general background on 
the analysis. See also EPA's Response to Comments (EPA-420-R-11-005) 
to the 2011 labeling rule, page 189, first paragraph, specifically 
the discussion of the derived five cycle equation and the non-linear 
adjustment with increasing MPG.
---------------------------------------------------------------------------

     Fuel prices and the value of saving fuel--Projected future 
fuel prices are a critical input into the preliminary economic analysis 
of alternative standards, because they determine the value of fuel 
savings both to new vehicle buyers and to society, and fuel savings 
account for the majority of the proposed rule's estimated benefits. For 
this proposed rule, the agencies are using the most recent fuel price 
projections from the U.S. Energy Information Administration's (EIA) 
Annual Energy Outlook (AEO) 2011 reference case forecast. The forecasts 
of fuel prices reported in EIA's AEO 2011 extend through 2035. Fuel 
prices beyond the time frame of AEO's forecast were estimated using an 
average growth rate for the years 2017-2035 to each year after 2035. 
This is the same methodology used by the agencies in the 2012-2016 
rulemaking, in the heavy duty truck and engine rule (76 FR 57106), and 
in the Interim Joint TAR. For example, these forecasts of gasoline fuel 
prices in 2009$ include $3.25 per gallon in 2017, $3.39 in 2021 and 
$3.71 in 2035. Extrapolating as described above, retail gasoline prices 
reach $4.16 per gallon in 2050 (measured in constant 2009 dollars). As 
discussed in Chapter 4 of the draft Joint TSD, while the agencies 
believe that EIA's AEO reference case generally represents a reasonable 
forecast of future fuel prices for purposes of use in our analysis of 
the benefits of this rule, we recognize that there is a great deal of 
uncertainty in any such forecast that could affect our estimates. The 
agencies request comment on how best to account for uncertainty in 
future fuel prices.
     Consumer valuation of fuel economy and payback period--In 
estimating the value of fuel economy improvements to potential vehicle 
buyers that would result from alternative CAFE and GHG standards, the 
agencies assume that buyers value the resulting fuel savings over only 
part of the expected lifetimes of the vehicles they purchase. 
Specifically, we assume that buyers value fuel savings over the first 
five years of a new vehicle's lifetime, and that buyers discount the 
value of these future fuel savings. The five-year figure represents the 
current average term of consumer loans to finance the purchase of new 
vehicles.
     Vehicle sales assumptions--The first step in estimating 
lifetime fuel consumption by vehicles produced during a model year is 
to calculate the number that are expected to be produced and sold. The 
agencies relied on the AEO 2011 Reference Case for forecasts of total 
vehicle sales, while the baseline market forecast developed by the 
agencies (discussed in Section II.B and in Chapter 1 of the TSD) 
divided total projected sales into sales of cars and light trucks.
     Vehicle lifetimes and survival rates--As in the 2012-2016 
final rule and Interim Joint TAR, we apply updated values of age-
specific survival rates for cars and light trucks to adjusted forecasts 
of passenger car and light truck sales to determine the number of these 
vehicles expected to remain in use during each year of their lifetimes. 
These values remain unchanged from prior analyses.
     Vehicle miles traveled--We calculated the total number of 
miles that cars and light trucks produced in each model year will be 
driven during each year of their lifetimes using estimates of annual 
vehicle use by age tabulated from the Federal Highway Administration's 
2001 National Household Travel Survey (NHTS),\158\ adjusted to account 
for the effects on vehicle use of subsequent increases in fuel prices. 
In order to insure that the resulting mileage schedules imply 
reasonable estimates of future growth in total car and light truck use, 
we calculated the rate of future growth in annual mileage at each age 
that would be necessary for total car and light truck travel to 
increase at the rates forecast in the AEO 2011 Reference Case. The 
growth rate in average annual car and light truck use produced by this 
calculation is approximately 1 percent per year through 2030 and 0.5 
percent thereafter. We applied these growth rates applied to the 
mileage figures derived from the 2001 NHTS to estimate annual mileage 
by vehicle age during each year of the expected lifetimes of MY 2017-
2025 vehicles. A similar approach to estimating future vehicle use was 
used in the 2012-2016 final rule and Interim Joint TAR, but the

[[Page 74932]]

future growth rates in average vehicle use have been revised for this 
proposal.
---------------------------------------------------------------------------

    \158\ For a description of the Survey, see http://www.bts.gov/programs/national_household_travel_survey/ (last accessed Sept. 
9, 2011).
---------------------------------------------------------------------------

     Accounting for the rebound effect of higher fuel economy--
The rebound effect refers to the increase in vehicle use that results 
if an increase in fuel efficiency lowers the cost of driving. For 
purposes of this NPRM, the agencies elected to continue to use a 10 
percent rebound effect in their analyses of fuel savings and other 
benefits from higher standards, consistent with the 2012-2016 light-
duty vehicle rulemaking and the Interim Joint TAR. That is, we assume a 
10 percent decrease in fuel cost per mile resulting from our proposed 
standards would result in a 1 percent increase in the annual number of 
miles driven at each age over a vehicle's lifetime. In Chapter 4 of the 
joint TSD, we provide a detailed explanation of the basis for our 
rebound estimate, including a summary of new literature published since 
the 2012-2016 rulemaking that lends further support to the 10 percent 
rebound estimate. We also refer the reader to Chapters X and XII of 
NHTSA's PRIA and Chapter 4 of the EPA DRIA that accompanies this 
preamble for sensitivity and uncertainty analyses of alternative 
rebound assumptions.
     Benefits from increased vehicle use--The increase in 
vehicle use from the rebound effect provides additional benefits to 
drivers, who may make more frequent trips or travel farther to reach 
more desirable destinations. This additional travel provides benefits 
to drivers and their passengers by improving their access to social and 
economic opportunities away from home. The analysis estimates the 
economic benefits from increased rebound-effect driving as the sum of 
the fuel costs they incur in that additional travel plus the consumer 
surplus drivers receive from the improved accessibility their travel 
provides. As in the 2012-2016 final rule we estimate the economic value 
of this consumer surplus using the conventional approximation, which is 
one half of the product of the decline in vehicle operating costs per 
vehicle-mile and the resulting increase in the annual number of miles 
driven.
     Added costs from congestion, accidents, and noise--
Although it provides benefits to drivers as described above, increased 
vehicle use associated with the rebound effect also contributes to 
increased traffic congestion, motor vehicle accidents, and highway 
noise. Depending on how the additional travel is distributed over the 
day and where it takes place, additional vehicle use can contribute to 
traffic congestion and delays by increasing traffic volumes on 
facilities that are already heavily traveled. These added delays impose 
higher costs on drivers and other vehicle occupants in the form of 
increased travel time and operating expenses. At the same time, this 
travel also increases costs associated with traffic accidents, and 
increased traffic noise. The agencies rely on estimates of congestion, 
accident, and noise costs caused by automobiles and light trucks 
developed by the Federal Highway Administration to estimate these 
increased external costs caused by added driving.\159\ This method is 
consistent with the 2012-2016 final rule.
---------------------------------------------------------------------------

    \159\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed Sept. 9, 2011).
---------------------------------------------------------------------------

     Petroleum consumption and import externalities--U.S. 
consumption of imported petroleum products also impose costs on the 
domestic economy that are not reflected in the market price for crude 
petroleum, or in the prices paid by consumers of petroleum products 
such as gasoline. These costs include (1) higher prices for petroleum 
products resulting from the effect of increased U.S. demand for 
imported oil on the world oil price (``monopsony costs''); (2) the 
expected costs associated with the risk of disruptions to the U.S. 
economy caused by sudden reductions in the supply of imported oil to 
the U.S.; and (3) expenses for maintaining a U.S. military presence to 
secure imported oil supplies from unstable regions, and for maintaining 
the strategic petroleum reserve (SPR) to cushion the U.S. economy 
against the effects of oil supply disruptions.\160\ Although the 
reduction in the global price of petroleum and refined products due to 
decreased demand for fuel in the U.S. resulting from this rule 
represents a benefit to the U.S. economy, it simultaneously represents 
an economic loss to other countries that produce and sell oil or 
petroleum products to the U.S. Recognizing the redistributive nature of 
this ``monopsony effect'' when viewed from a global perspective (which 
is consistent with the agencies' use of a global estimate for the 
social cost of carbon to value reductions in CO2 emissions, 
the energy security benefits estimated to result from this program 
exclude the value of this monopsony effect. In contrast, the 
macroeconomic disruption and adjustment costs that arise from sudden 
reductions in the supply of imported oil to the U.S. do not have 
offsetting impacts outside of the U.S., so the estimated reduction in 
their expected value stemming from reduced U.S. petroleum imports is 
included in the energy security benefits estimated for this program. 
U.S. military costs are excluded from the analysis because their 
attribution to particular missions or activities is difficult. Also, 
historical variation in U.S. military costs have not been associated 
with changes in U.S. petroleum imports, although we recognize that more 
broadly, there may be significant (if unquantifiable) benefits in 
improving national security by reducing oil imports. Similarly, since 
the size or other factors affecting the cost of maintaining the SPR 
historically have not varied in response to changes in U.S. oil import 
levels, changes in the costs of the SPR are excluded from the estimates 
of the energy security benefits of the program. To summarize, the 
agencies have included only the macroeconomic disruption and adjustment 
costs portion of the energy security benefits to estimate the monetary 
value of the total energy security benefits of this program. Based on a 
recent update of an earlier peer-reviewed Oak Ridge National Laboratory 
study that was used in support of the both the 2012-2016 light duty 
vehicle and the 2014-2018 medium- and heavy-duty vehicle rulemaking, we 
estimate that each gallon of fuel saved will reduce the expected 
macroeconomic disruption and adjustment costs of sudden reductions in 
the supply of imported oil to the U.S. economy by $0.185 (2009$) in 
2025. Each gallon of fuel saved as a consequence of higher standards is 
anticipated to reduce total U.S. imports of crude petroleum or refined 
fuel by 0.95 gallons.\161\ The energy security analysis conducted for 
this proposal also estimates that the world price of oil will fall 
modestly in response to lower U.S. demand for refined 
fuel.162 163 The energy security

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methodology used in this proposal is the same as that used by the 
agencies in both the 2012-2016 light duty vehicle and 2014-2018 medium- 
and heavy-duty vehicle rulemakings. In those rulemakings, the agencies 
addressed comments about the magnitude of their energy security 
estimates and methodological issues such as whether to include the 
monopsony benefits in energy security calculations.
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    \160\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D. R., and M. A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993). 
``The Economics of Energy Security: Theory, Evidence, Policy,'' in 
A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural 
Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, 
pp. 1167-1218.
    \161\ Each gallon of fuel saved is assumed to reduce imports of 
refined fuel by 0.5 gallons, and the volume of fuel refined 
domestically by 0.5 gallons. Domestic fuel refining is assumed to 
utilize 90 percent imported crude petroleum and 10 percent 
domestically-produced crude petroleum as feedstocks. Together, these 
assumptions imply that each gallon of fuel saved will reduce imports 
of refined fuel and crude petroleum by 0.50 gallons + 0.50 
gallons*90 percent = 0.50 gallons + 0.45 gallons = 0.95 gallons.
    \162\ Leiby, Paul. Oak Ridge National Laboratory. ``Approach to 
Estimating the Oil Import Security Premium for the MY 2017-2025 
Light Duty Vehicle Proposal'' 2011.
    \163\ Note that this change in world oil price is not reflected 
in the AEO projections described earlier in this section.
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     Air pollutant emissions--
    [cir] Impacts on criteria air pollutant emissions--Criteria air 
pollutants emitted by vehicles and during fuel production and 
distribution include carbon monoxide (CO), hydrocarbon compounds 
(usually referred to as ``volatile organic compounds,'' or VOC), 
nitrogen oxides (NOX), fine particulate matter 
(PM2.5), and sulfur oxides (SOX). Although 
reductions in domestic fuel refining and distribution that result from 
lower fuel consumption will reduce U.S. emissions of these pollutants, 
additional vehicle use associated with the rebound effect, and 
additional electricity production will increase emissions. Thus the net 
effect of stricter standards on emissions of each criteria pollutant 
depends on the relative magnitudes of reduced emissions from fuel 
refining and distribution, and increases in emissions resulting from 
added vehicle use. The agencies' analysis assumes that the per-mile 
emission rates for cars and light trucks produced during the model 
years affected by the proposed rule will remain constant at the levels 
resulting from EPA's Tier 2 light duty vehicle emissions standards. The 
agencies' approach to estimating criteria air pollutant emissions is 
consistent with the method used in the 2012-2016 final rule (where the 
agencies received no significant adverse comments), although the 
agencies employ a more recent version of the EPA's MOVES (Motor Vehicle 
Emissions Simulator) model.
    [cir] Economic value of reductions in criteria pollutant 
emissions--For the purpose of the joint technical analysis, EPA and 
NHTSA estimate the economic value of the human health benefits 
associated with reducing population exposure to PM2.5 using 
a ``benefit-per-ton'' method. These PM2.5-related benefit-
per-ton estimates provide the total monetized benefits to human health 
(the sum of reductions in premature mortality and premature morbidity) 
that result from eliminating one ton of directly emitted 
PM2.5, or one ton of other pollutants that contribute to 
atmospheric levels of PM2.5 (such as NOX, 
SOX, and VOCs), from a specified source. These unit values 
remain unchanged from the 2012-2016 final rule, and the agencies 
received no significant adverse comment on the analysis. Note that the 
agencies' analysis includes no estimates of the direct health or other 
benefits associated with reductions in emissions of criteria pollutants 
other than PM2.5.
    [cir] Impacts on greenhouse gas (GHG) emissions--NHTSA estimates 
reductions in emissions of carbon dioxide (CO2) from 
passenger car and light truck use by multiplying the estimated 
reduction in consumption of fuel (gasoline and diesel) by the quantity 
or mass of CO2 emissions released per gallon of fuel 
consumed. EPA directly calculates reductions in total CO2 
emissions from the projected reductions in CO2 emissions by 
each vehicle subject to the proposed rule.\164\ Both agencies also 
calculate the impact on CO2 emissions that occur during fuel 
production and distribution resulting from lower fuel consumption, as 
well as the emission impacts due to changes in electricity production. 
Although CO2 emissions account for nearly 95 percent of 
total GHG emissions that result from fuel combustion during vehicle 
use, emissions of other GHGs are potentially significant as well 
because of their higher ``potency'' as GHGs than that of CO2 
itself. EPA and NHTSA therefore also estimate the change in upstream 
and downstream emissions of non-CO2 GHGs that occur during 
the aforementioned processes due to their respective standards.\165\ 
The agencies approach to estimating GHG emissions is consistent with 
the method used in the 2012-2016 final rule and the Interim Joint TAR.
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    \164\ The weighted average CO2 content of 
certification gasoline is estimated to be 8,887 grams per gallon, 
while that of diesel fuel is estimated to be approximately 10,200 
grams per gallon.
    \165\ There is, however, an exception. NHTSA does not and cannot 
claim benefit from reductions in downstream emissions of HFCs 
because they do not relate to fuel economy, while EPA does because 
all GHGs are relevant for purposes of EPA's Clean Air Act standards.
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    [cir] Economic value of reductions in CO2 emissions--EPA 
and NHTSA assigned a dollar value to reductions in CO2 
emissions using recent estimates of the ``social cost of carbon'' (SCC) 
developed by a federal interagency group that included the two 
agencies. As that group's report observed, ``The SCC is an estimate of 
the monetized damages associated with an incremental increase in carbon 
emissions in a given year. It is intended to include (but is not 
limited to) changes in net agricultural productivity, human health, 
property damages from increased flood risk, and the value of ecosystem 
services due to climate change.'' \166\ Published estimates of the SCC 
vary widely as a result of uncertainties about future economic growth, 
climate sensitivity to GHG emissions, procedures used to model the 
economic impacts of climate change, and the choice of discount 
rates.\167\ The SCC estimates used in this analysis were developed 
through an interagency process that included EPA, DOT/NHTSA, and other 
executive branch entities, and concluded in February 2010. We first 
used these SCC estimates in the benefits analysis for the 2012-2016 
light-duty vehicle rulemaking. We have continued to use these estimates 
in other rulemaking analyses, including the Greenhouse Gas Emission 
Standards and Fuel Efficiency Standards for Medium- and Heavy-Duty 
Engines and Vehicles (76 FR 57106, p. 57332) . The SCC Technical 
Support Document (SCC TSD) provides a complete discussion of the 
methods used to develop these SCC estimates.
---------------------------------------------------------------------------

    \166\ SCC TSD, see page 2. Docket ID EPA-HQ-OAR-2009-0472-
114577, Technical Support Document: Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, with participation by 
Council of Economic Advisers, Council on Environmental Quality, 
Department of Agriculture, Department of Commerce, Department of 
Energy, Department of Transportation, Environmental Protection 
Agency, National Economic Council, Office of Energy and Climate 
Change, Office of Management and Budget, Office of Science and 
Technology Policy, and Department of Treasury (February 2010). Also 
available at http://epa.gov/otaq/climate/regulations.htm
    \167\ SCC TSD, see pages 6-7.
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     The value of changes in driving range--By reducing the 
frequency with which drivers typically refuel their vehicles, and by 
extending the upper limit of the range they can travel before requiring 
refueling, improving fuel economy and reducing GHG emissions provides 
additional benefits to their owners. The primary benefits from the 
reduction in the number of required refueling cycles are the value of 
time saved to drivers and other adult vehicle occupants, as well as the 
savings to owners in terms of the cost of the fuel that would have 
otherwise been consumed in transit during those (now no longer 
required) refueling trips. Using recent data on vehicle owners' 
refueling patterns gathered from a survey conducted by the National 
Automotive Sampling System (NASS), NHTSA was able to better estimate 
parameters associated with refueling trips. NASS data provided NHTSA 
with

[[Page 74934]]

the ability to estimate the average time required for a refueling trip, 
the average time and distance drivers typically travel out of their way 
to reach fueling stations, the average number of adult vehicle 
occupants, the average quantity of fuel purchased, and the distribution 
of reasons given by drivers for refueling. From these estimates, NHTSA 
constructed an updated set of economic assumptions to update those used 
in the 2012-2016 FRM in calculating refueling-related benefits. The 
2012-2016 FRM discusses NHTSA's intent to utilize the NASS data on 
refueling trip characteristics in future rulemakings. While the NASS 
data improve the precision of the inputs used in the analysis of the 
benefits resulting from fewer refueling cycles, the framework of the 
analysis remains essentially the same as in the 2012-2016 final rule. 
Note that this topic and associated benefits were not covered in the 
Interim Joint TAR. Detailed discussion and examples of the agencies' 
approach are provided in Chapter VIII of NHTSA's PRIA and Chapter 8 of 
EPA's DRIA.
     Discounting future benefits and costs--Discounting future 
fuel savings and other benefits is intended to account for the 
reduction in their value to society when they are deferred until some 
future date, rather than received immediately.\168\ The discount rate 
expresses the percent decline in the value of these future fuel-savings 
and other benefits--as viewed from today's perspective--for each year 
they are deferred into the future. In evaluating the non-climate 
related benefits of the final standards, the agencies have employed 
discount rates of both 3 percent and 7 percent, consistent with the 
2012-2016 final rule and OMB Circular A-4 guidance.
---------------------------------------------------------------------------

    \168\ Because all costs associated with improving vehicles' fuel 
economy and reducing CO2 emissions are assumed to be 
incurred at the time they are produced, these costs are already 
expressed in their present values as of each model year affected by 
the proposed rule, and require discounting only for the purpose of 
expressing them as present values as of a common year.
---------------------------------------------------------------------------

    For the reader's reference, Table II-8 and Table II-9 below 
summarize the values used to calculate the impacts of each proposed 
standard. The values presented in this table are summaries of the 
inputs used for the models; specific values used in the agencies' 
respective analyses may be aggregated, expanded, or have other relevant 
adjustments. See Joint TSD 4 and each agency's respective RIA for 
details. The agencies seek comment on the economic assumptions 
presented in the table.
    In addition, the agencies analyzed the sensitivity of their 
estimates of the benefits and costs associated with this proposed rule 
to variation in the values of many of these economic assumptions and 
other inputs. The values used in these sensitivity analyses and their 
results are presented their agencies' respective RIAs. A wide range of 
estimates is available for many of the primary inputs that are used in 
the agencies' CAFE and GHG emissions models. The agencies recognize 
that each of these values has some degree of uncertainty, which the 
agencies further discuss in the draft Joint TSD. The agencies have 
tested the sensitivity of their estimates of costs and benefits to a 
range of assumptions about each of these inputs, and present these 
sensitivity analyses in their respective RIAs. For example, NHTSA 
conducted separate sensitivity analyses for, among other things, 
discount rates, fuel prices, the social cost of carbon, the rebound 
effect, consumers' valuation of fuel economy benefits, battery costs, 
mass reduction costs, the value of a statistical life, and the indirect 
cost markup factor. This list is similar in scope to the list that was 
examined in the MY 2012-2016 final rule, but includes battery costs and 
mass reduction costs, while dropping military security and monopsony 
costs. NHTSA's sensitivity analyses are contained in Chapter X of 
NHTSA's PRIA. EPA conducted sensitivity analyses on the rebound effect, 
battery costs, mass reduction costs, the indirect cost markup factor 
and on the cost learning curves used in this analysis. These analyses 
are found in Chapters 3 and 4 of the EPA DRIA. In addition, NHTSA 
performs a probabilistic uncertainty analysis examining simultaneous 
variation in the major model inputs including technology costs, 
technology benefits, fuel prices, the rebound effect, and military 
security costs. This information is provided in Chapter XII of NHTSA's 
PRIA. These uncertainty parameters are consistent with those used in 
the MY 2012-2016 final rule. The agencies will consider conducting 
additional sensitivity and uncertainty analyses for the final rule as 
appropriate.
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F. Air Conditioning Efficiency CO2 Credits and Fuel 
Consumption Improvement Values, Off-cycle Reductions, and Full-size 
Pickup Trucks

    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate credits for complying with GHG standards by incorporating 
efficiency improving vehicle technologies that would reduce 
CO2 and fuel consumption from air conditioning (A/C) 
operation or from other vehicle operation that is not captured by the 
Federal Test Procedure (FTP) and Highway Fuel Economy Test (HFET), also 
collectively known as the ``two-cycle'' test procedure. EPA referred to 
these credits as ``off-cycle credits.''
    For this proposal, EPA, in coordination with NHTSA, is proposing 
under their EPCA authorities to allow manufacturers to generate fuel 
consumption improvement values for purposes of CAFE compliance based on 
the use of A/C efficiency and off-cycle technologies. This proposed 
expansion is a change from the 2012-16 final rule where EPA only 
provided the A/C efficiency and off-cycle credits for the GHG program. 
EPA is not proposing to allow these increases for compliance with the 
CAFE program for MYs 2012-2016, nor to allow any compliance with the 
CAFE program as a result of reductions in direct A/C emissions 
resulting from leakage of HFCs from air conditioning systems, which 
remains a flexibility unique to the GHG program.
    The agencies believe that because of the significant amount of 
credits and fuel consumption improvement values offered under the A/C 
program (up to 5.0 g/mi for cars and 7.2 g/mi for trucks which is 
equivalent to a fuel consumption improvement value of 0.000563 gal/mi 
for cars and 0.000586 gal/mi for trucks) that manufacturers will 
maximize the benefits these credits and fuel consumption improvement 
values afford. Consistent with the 2012-2016 final rule, EPA will 
continue to adjust the stringency of the two-cycle tailpipe 
CO2 standards in order to account for this projected 
widespread penetration of A/C credits (as described more fully in 
Section III.C), and NHTSA has also accounted for expected A/C 
efficiency improvements in determining the maximum feasible CAFE 
standards. The agencies discuss these proposed CO2 credits/
fuel consumption improvement values below and in more detail in the 
Joint TSD (Chapter 5). EPA discusses additional proposed GHG A/C 
leakage credits that are unrelated to CO2 and fuel 
consumption (though they are part of EPA's CO2 equivalent 
calculation) in Section III.C below.
    EPA, in coordination with NHTSA, is also proposing to add for MYs 
2017-2025 a new incentive for Advanced Technology for Full Sized Pickup 
Trucks. Under its EPCA authority for CAFE and under its CAA authority 
for GHGs, EPA is proposing GHG credits and fuel economy improvement 
values for manufacturers that hybridize a significant quantity of their 
full size pickup trucks, or that use other technologies that 
significantly reduce CO2 emissions and fuel consumption. 
Further discussions of the A/C, off-cycle, and the advanced technology 
for pick-up truck incentive programs are provided below.
1. Proposed Air Conditioning CO2 Credits and Fuel 
Consumption Improvement Values
    The credits/fuel consumption improvement values for higher-
efficiency air conditioning technologies are very similar to those EPA 
included in the 2012-2016 GHG final rule. The proposed credits/fuel 
consumption improvement values represent an improved understanding of 
the relationships between A/C technologies and CO2 emissions 
and fuel consumption. Much of this

[[Page 74938]]

understanding results from a new vehicle simulation tool that EPA has 
developed and the agencies are using for this proposal. EPA designed 
this model to simulate in an integrated way the dynamic behavior of the 
several key systems that affect vehicle efficiency: The engine, 
electrical, transmission, and vehicle systems. The simulation model is 
supported by data from a wide range of sources; Chapter 2 of the Draft 
Regulatory Impact Analysis discusses its development in more detail.
    The agencies have identified several technologies that are key to 
the amount of fuel a vehicle consumes and thus the amount of 
CO2 it emits. Most of these technologies already exist on 
current vehicles, but manufacturers can improve the energy efficiency 
of the technology designs and operation. For example, most of the 
additional air conditioning related load on an engine is due to the 
compressor which pumps the refrigerant around the system loop. The less 
the compressor operates, the less load the compressor places on the 
engine resulting in less fuel consumption and CO2 emissions. 
Thus, optimizing compressor operation with cabin demand using more 
sophisticated sensors, controls and control strategies, is one path to 
improving the overall efficiency of the A/C system. Additional 
components or control strategies are available to manufacturers to 
reduce the air conditioning load on the engine which are discussed in 
more detail in Chapter 5 of the joint TSD. Overall, the agencies have 
concluded that these improved technologies could together reduce A/C-
related CO2 and fuel consumption of today's typical air 
conditioning systems by 42%. The agencies propose to use this level of 
improvement to represent the maximum efficiency credit available to a 
manufacturer.
    Demonstrating the degree of efficiency improvement that a 
manufacturer's air conditioning systems achieve--thus quantifying the 
appropriate amount of GHG credit and CAFE fuel consumption improvement 
value the manufacturer is eligible for--would ideally involve a 
performance test. That is, a test that would directly measure 
CO2 (and thus allow calculation of fuel consumption) before 
and after the incorporation of the improved technologies. Progress 
toward such a test continues. As mentioned in the introduction to this 
section, the primary vehicle emissions and fuel consumption test, the 
Federal Test Procedure (FTP) or ``two-cycle'' testing, does not require 
or simulate air conditioning usage through the test cycle. The SC03 
test is designed to identify any effect the air conditioning system has 
on other emissions when it is operating under extreme conditions, but 
is not designed to measure the small differences in CO2 due 
to different A/C technologies.
    At the time of the final rule for the 2012-2016 GHG program, EPA 
concluded that a practical, performance-based test procedure capable of 
quantifying efficiency credits was not yet available. However, EPA 
introduced a specialized new procedure that it believed would be 
appropriate for the more limited purpose of demonstrating that the 
design improvements for which a manufacturer was earning credits 
produced actual efficiency improvements. EPA's test is a fairly simple 
test, performed while the vehicle is at idle. Beginning with the 2014 
model year, the A/C Idle Test was to be used to qualify a manufacturer 
to be able to use the technology lookup table (``menu'') approach to 
quantify credits. That is, a manufacturer would need to achieve a 
certain CO2 level on the Idle Test in order to access the 
``menu'' and generate GHG efficiency credits.
    Since that final rule was published, several manufacturers have 
provided data that raises questions about the ability of the Idle Test 
to fulfill its intended purpose. Especially for small, lower-powered 
vehicles, the data also shows that it is difficult to achieve 
reasonable test-to-test repeatability. The manufacturers have also 
informed EPA (in meetings subsequent to the 2012-2016 final rule) that 
the Idle Test does not accurately capture the improvements from many of 
the technologies listed in the menu. EPA has been aware of all of these 
issues, and proposing to modify the Idle Test such that the threshold 
would be a function of engine displacement, in contrast to the flat 
threshold from the previous rule. EPA continues to consider this Idle 
Test to be a reasonable measure of some A/C CO2 emissions as 
there is significant real-world driving activity at idle, and the Idle 
Test significantly exercises a number of the A/C technologies from the 
menu. Sec III.C.1.b.i below and Chapter 5 (5.1.3.5) of the Joint TSD 
describe further the adjustments EPA is proposing to the Idle Test for 
manufacturers to qualify for MYs 2014-2016 A/C efficiency credits. EPA 
proposes that manufacturers continue to use the menu for MYs 2014-2016 
to determine credits for the GHG program. This was also the approach 
that EPA used for efficiency credits in the MY2012-2016 GHG rule. 
However for MYs 2017-2025, EPA is proposing a new test procedure to 
demonstrate the effectiveness of A/C efficiency technologies and 
credits as described below. For MYs 2014-2016, EPA requests comment on 
substituting the Idle Test requirement with a reporting requirement 
from this new test procedure as described in Section III.C.1.b.i below.
    In order to correct the shortcomings of the available tests, EPA 
has developed a four-part performance test, called the AC17. The test 
includes the SC03 driving cycle, the fuel economy highway cycle, in 
addition to a pre-conditioning cycle, and a solar soak period. EPA is 
proposing that manufacturers use this test to demonstrate that new or 
improved A/C technologies actually result in efficiency improvements. 
Since the appropriateness of the test is still being evaluated, EPA 
proposes that manufacturers continue to use the menu to determine 
credits and fuel consumption improvement values for the GHG and CAFE 
programs. This design-based approach would assign CO2 credit 
to each efficiency-improving air conditioning technology that the 
manufacturer incorporates in a vehicle model. The sum of these values 
for all technologies would be the amount of CO2 credit 
generated by that vehicle, up to a maximum of 5.0 g/mi for car and 7.2 
g/mi for trucks. As stated above, this is equivalent to a fuel 
consumption value of 0.000563 gallons/mi for cars and 0.000586 gallons/
mi for trucks. EPA will consult with NHTSA on the amount of fuel 
consumption improvement value manufacturers may factor into their CAFE 
calculations if there are adjustments that may be required in the 
future. Table II-10 presents the proposed CO2 credit and 
CAFE fuel consumption improvement values for each of the efficiency-
reducing air conditioning technologies considered in this rule. More 
detail is provided on the calculation of indirect A/C CAFE fuel 
consumption improvement values in chapter 5 of the TSD. EPA is 
proposing very specific definitions of each of the technologies in the 
table below which are discussed in Chapter 5 of the draft joint TSD to 
ensure that the air conditioner technology used by manufacturers 
seeking these credits corresponds with the technology used to derive 
the credit/fuel consumption improvement values.
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    As mentioned above, EPA, working with manufacturers and CARB, has 
made significant progress in developing a more robust test that may 
eventually be capable of measuring differences in A/C efficiency. While 
EPA believes that more testing and development will be necessary before 
the new test could be used directly to quantify efficiency credits and 
fuel consumption improvement values, EPA is proposing that the test be 
used to demonstrate that new or improved A/C technologies result in 
reductions in GHG emissions and fuel consumption. EPA is proposing the 
AC17 test as a reporting-only alternative to the Idle Test for MYs 
2014-2016, and as a prerequisite for generating Efficiency Credits and 
fuel consumption improvement values for MY 2017 and later. To 
demonstrate that a vehicle's A/C system is delivering the efficiency 
benefits of the new technologies, manufacturers would run the AC17 test 
procedure on a vehicle that incorporates the new technologies, with the 
A/C system off and then on, and then compare that result to the result 
from a previous model year or baseline vehicle with similar vehicle 
characteristics, except that the comparison vehicle would not have the 
new technologies. If the test result with the new technology 
demonstrated an emission reduction that is greater than or equal to the 
menu-based credit potential of those technologies, the manufacturer 
would generate the appropriate credit based on the menu. However, if 
the test result did not demonstrate the full menu-based potential of 
the technology, partial credit could still be earned, in proportion to 
how far away the result was from the expected menu-based credit amount.
    EPA discusses the new test in more detail in Section III.C.1.b 
below and in Chapter 5 (5.1.3.5) of the joint TSD. Due to the length of 
time to conduct the test procedure, EPA is also proposing that required 
testing on the new AC17 test procedure be limited to a subset of 
vehicles. The agencies request comment on this approach to establishing 
A/C efficiency credits and fuel consumption improvement values and the 
use of the new A/C test.
    For the CAFE program, EPA is proposing to determine a fleet average 
fuel consumption improvement value in a manner consistent with the way 
a fleet average CO2 credits will be determined. EPA would 
convert the metric tons of CO2 credits for air conditioning, 
off-cycle, and full size pick-up to fleet-wide fuel consumption 
improvement values, consistent with the way EPA would convert the 
improvements in CO2 performance to metric tons of credits. 
See discussion in section III. C. There would be separate improvement 
values for each type of credit, calculated separately for cars and for 
trucks. These improvement values would be subtracted from the 
manufacturer's two-cycle-based fleet fuel consumption value to yield a 
final new fleet fuel consumption value, which would be inverted to 
determine a final fleet fuel CAFE value. EPA considered, but is not 
proposing, an approach where the fuel consumption improvement values 
would be accounted for at the individual vehicle level. In this case a 
credit-adjusted MPG value would have to be calculated for each vehicle 
that accrues air conditioning, off-cycle, or pick-up truck credits, and 
a credit-adjusted CAFE would be calculated by sales-weighting each 
vehicle. EPA found that a significant issue with this approach is that 
the credit programs do not align with the way fuel economy and GHG 
emissions are currently reported to EPA or to NHTSA, i.e., at the model 
type level. Model types are similar in basic engine and transmission 
characteristics, but credits are expected to vary within a model type, 
possibly considerably. For example, within a model type the credits 
could vary by body style, trim level, footprint, and the type of air 
conditioning systems and other GHG reduction technologies installed. 
Manufacturers would have to report sales volumes for each unique 
combination of all of these factors in order to enable EPA to perform 
the CAFE averaging calculations. This

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would require a dramatic and expensive overhaul of EPA's data systems, 
and the manufacturers would likely face similar impacts. The vehicle-
specific approach would also likely introduce more opportunities for 
errors resulting from data entry and rounding, since each vehicle's 
base fuel economy would be modified by multiple consumption values 
reported to at least six decimal places. The proposed approach would 
instead focus on calculating the GHG credits correctly and summing them 
for each of the car and truck fleets, and the step of transforming to a 
fuel consumption improvement value is relatively straightforward. 
However, given that the vehicle-specific and fleet-based approaches 
yield the same end result, EPA requests comment on whether one approach 
or the other is preferable, and if so, why a specific approach is 
preferable.
2. Off-Cycle CO2 Credits
    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate adjustments (credits) for employing new and innovative 
technologies that achieve CO2 reductions which are not 
reflected on current 2-cycle test procedures. For this proposal, EPA, 
in coordination with NHTSA, is proposing to apply the off-cycle credits 
and equivalent fuel consumption improvement values to both the CAFE and 
GHG programs. This proposed expansion is a change from the 2012-16 
final rule where only EPA provided the off-cycle credits for the GHG 
program. For MY 2017 and later, EPA is proposing that manufacturers may 
continue to use off-cycle credits for GHG compliance and begin to use 
fuel consumption improvement values for CAFE compliance. In addition, 
EPA is proposing a set of defined (e.g. default) values for identified 
off-cycle technologies that would apply unless the manufacturer 
demonstrates to EPA that a different value for its technology is 
appropriate.
    Starting with MY2008, EPA started employing a ``five-cycle'' test 
methodology to measure fuel economy for the fuel economy label. 
However, for GHG and CAFE compliance, EPA continues to use the 
established ``two-cycle'' (city and highway test cycles, also known as 
the FTP and HFET) test methodology. As learned through development of 
the ``five-cycle'' methodology and researching this proposal, EPA and 
NHTSA recognize that there are technologies that provide real-world GHG 
emissions and fuel consumption improvements, but those improvements are 
not fully reflected on the ``two-cycle'' test.
    During meetings with vehicle manufacturers, EPA received comments 
that the approval process for generating off-cycle credits was 
complicated and did not provide sufficient certainty on the amount of 
credits that might be approved. Commenters also maintained that it is 
impractical to measure small incremental improvements on top of a large 
tailpipe measurement, similar to comments received related to 
quantifying air conditioner improvements. These same manufacturers 
believed that such a process could stifle innovation and fuel efficient 
technologies from penetrating into the vehicle fleet.
    In response to these concerns, EPA is proposing a menu with a 
number of technologies that the agency believes will show real-world 
CO2 and fuel consumption benefits which can be reasonably 
quantified by the agencies at this time. This list of pre-approved 
technologies includes a quantified default value that would apply 
unless the manufacturer demonstrates to EPA that a different value for 
a technology is appropriate. This list is similar to the menu driven 
approach described in the previous section on A/C efficiency credits. 
The estimates of these credits were largely determined from research, 
analysis and simulations, rather from full vehicle testing, which would 
have been cost and time prohibitive. These predefined estimates are 
somewhat conservative to avoid the potential for windfall. If 
manufactures believe their specific off-cycle technology achieves 
larger improvement, they may apply for greater credits and fuel 
consumption improvement values with supporting data. For technologies 
not listed, EPA is proposing a case-by-case approach for approval of 
off-cycle credits and fuel consumption improvement values, similar to 
the approach in the 2012-2016 rule but with important modifications to 
streamline the approval process. EPA will also consult with NHTSA 
during the review process. See section III.C below; technologies for 
which EPA is proposing default off-cycle credit values and fuel 
consumption improvement values are shown in Table II--11 below. Fuel 
consumption improvement values under the CAFE program based on off-
cycle technology would be equivalent to the off-cycle credit allowed by 
EPA under the GHG program, and these amounts would be determined using 
the same procedures and test methods as are proposed for use in EPA's 
GHG program.
    EPA and NHTSA are not proposing to adjust the stringency of the 
standards based on the availability of off-cycle credits and fuel 
consumption improvement values. There are a number of reasons for this. 
First, the agencies have limited technical information on the cost, 
development time necessary, and manufacturability of many of these 
technologies. The analysis presented below (and in greater detail in 
Chapter 5 of the joint TSD) is limited to quantifying the effectiveness 
of the technology (for the purposes of quantifying credits and fuel 
consumption improvement values). It is based on a combination of data 
and engineering analysis for each technology. Second, for most of these 
technologies the agencies have no data on what the rates of penetration 
of these technologies would be during the rule timeframe. Thus, with 
the exception of active aerodynamic improvements and stop start 
technology, the agencies do not have adequate information available to 
consider the technologies on the list when determining the appropriate 
GHG emissions or CAFE standards. The agencies expect to continue to 
improve their understanding of these technologies over time. If further 
information is obtained during the comment period that supports 
consideration of these technologies in setting the standards, EPA and 
NHTSA will reevaluate their positions. However, given the current lack 
of detailed information about these technologies, the agencies do not 
expect that it will be able to do more for the final rule than estimate 
some general amount of reasonable projected cost savings from 
generation of off-cycle credits and fuel consumption improvement 
values. Therefore, effectively the off-cycle credits and fuel 
consumption improvement values allow manufacturers additional 
flexibility in selecting technologies that may be used to comply with 
GHG emission and CAFE standards.
    Two technologies on the list--active aerodynamic improvements and 
stop start--are in a different position than the other technologies on 
the list. Both of these technologies are included in the agencies' 
modeling analysis of technologies projected to be available for use in 
achieving the reductions needed for the standards. We have information 
on their effectiveness, cost, and availability for purposes of 
considering them along with the various other technologies we consider 
in determining the appropriate CO2 emissions standard. These 
technologies are among those listed in Chapter 3 of the joint TSD and 
have measureable benefit on the 2-cycle test. However, in the context 
of off-cycle credits and fuel

[[Page 74942]]

consumption improvement values, stop start is any technology which 
enables a vehicle to automatically turn off the engine when the vehicle 
comes to a rest and restart the engine when the driver applies pressure 
to the accelerator or releases the brake. This includes HEVs and PHEVs 
(but not EVs). In addition, active grill shutters is just one of 
various technologies that can be used as part of aerodynamic design 
improvements (as part of the ``aero2'' technology). The modeling and 
other analysis developed for determining the appropriate emissions 
standard includes these technologies, using the effectiveness values on 
the 2-cycle test. This is consistent with our consideration of all of 
the other technologies included in these analyses. Including them on 
the list for off-cycle credit and fuel consumption improvement value 
generation, for purposes of compliance with the standards, would 
recognize that these technologies have a higher degree of effectiveness 
than reflected in their 2-cycle effectiveness. As discussed in Sections 
III.C and Chapter 5 of the joint TSD, the agencies have taken into 
account the generation of off-cycle credits and fuel consumption 
improvement values by these two technologies in determining the 
appropriateness of the proposed standards, considering the amount of 
credit and fuel consumption improvement value, the projected degree of 
penetration of these technologies, and other factors. The proposed 
standards are appropriate recognizing that these technologies would 
also generate off-cycle credits and fuel consumption improvement 
values. Section III.D has a more detailed discussion on the feasibility 
of the standards within the context of the flexibilities (such as off-
cycle credits and fuel consumption improvement values) proposed in this 
rule.
    For these technologies that provide a benefit on five-cycle 
testing, but show less benefit on two cycle testing, in order to 
quantify the emissions impacts of these technologies, EPA will simply 
subtract the two-cycle benefit from the five-cycle benefit for the 
purposes of assigning credit and fuel consumption improvement values 
for this pre-approved list. Other technologies, such as more efficient 
lighting show no benefit over any test cycle. In these cases, EPA will 
estimate the average amount of usage using MOVES \169\ data if possible 
and use this to calculate a duty-cycle-weighted benefit (or credit and 
fuel consumption improvement value). In the 2012-2016 rule, EPA stated 
a technology must have ``real world GHG reductions not significantly 
captured on the current 2-cycle tests* * *'' For this proposal, EPA is 
proposing to modify this requirement to allow technologies as long as 
the incremental benefit in the real-world is significantly better than 
on the 2-cycle test. There are environmental benefits to encouraging 
these kinds of technologies that might not otherwise be employed, 
beyond the level that the 2-cycle standards already do, thus we are now 
allowing credits and fuel consumption improvement values to be 
generated where the technology achieves an incremental benefit that is 
significantly better than on the 2-cycle test, as is the case for the 
technologies on the list.
---------------------------------------------------------------------------

    \169\ MOVES is EPA's MOtor Vehicle Emissions Simulator. This 
model contains (in its database) a wide variety of fleet and 
activity data as well as national ambient temperature conditions.
---------------------------------------------------------------------------

    EPA and NHTSA evaluated many more technologies for off-cycle 
credits and fuel consumption improvement values and decided that the 
following technologies should be eligible for off-cycle credits and 
fuel consumption improvement values. These eleven technologies eligible 
for credits and fuel consumption improvement values are shown in Table 
II-11 below. EPA is proposing that a CAFE improvement value for off-
cycle improvements be determined at the fleet level by converting the 
CO2 credits determined under the EPA program (in metric tons 
of CO2) for each fleet (car and truck) to a fleet fuel 
consumption improvement value. This improvement value would then be 
used to adjust the fleet's CAFE level upward. See the proposed 
regulations at 40 CFR 600.510-12. Note that while the table below 
presents fuel consumption values equivalent to a given CO2 
credit value, these consumption values are presented for informational 
purposes and are not meant to imply that these values will be used to 
determine the fuel economy for individual vehicles.

[[Page 74943]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.041

    Table II-11 shows the proposed list of off-cycle technologies and 
credits and equivalent fuel consumption improvement values for cars and 
trucks. The credits and fuel consumption improvement values for engine 
heat recovery and solar roof panels are scalable, depending on the 
amount of energy these systems can generate for the vehicle. The Solar/
Thermal control technologies are varied and are limited to 3 and 4.3 g/
mi (car and truck respectively) total.
    To ensure that the off cycle technology used by manufacturers 
seeking these credits and fuel consumption improvement values 
corresponds with the technology used to derive the credit and fuel 
consumption improvement values, EPA is proposing very specific 
definitions of each of the technologies in the table of the list of 
technologies in Chapter 5 of the draft joint TSD. The agencies are 
requesting comment on all aspects of the off-cycle credit and fuel 
consumption improvement value program, and would welcome any data to 
support an adjustment to this table, whether it is to adjust the values 
or to add or remove technologies.

Vehicle Simulation Tool

    Chapter 2 of the RIA provides a detailed description of the vehicle 
simulation tool that EPA has been developing. This tool is capable of 
simulating a wide range of conventional and advanced engines, 
transmissions, and vehicle technologies over various driving cycles. It 
evaluates technology package effectiveness while taking into account 
synergy (and dis-synergy) effects among vehicle components and 
estimates GHG emissions for various combinations of technologies. For 
the 2017 to 2025 GHG proposal, this simulation tool was used to assist 
estimating the amount of GHG credits for improved A/C systems and off-
cycle technologies. EPA seeks public comments on this approach of using 
the tool for directly generating and fine-tuning some of the credits in 
order to capture the amount of GHG reductions provided by primarily 
off-cycle technologies.
    There are a number of technologies that could bring additional GHG 
reductions over the 5-cycle drive test (or in the real world) compared 
to the combined FTP/Highway (or two) cycle test. These are called off-
cycle technologies and are described in chapter 5 of the Joint TSD in 
detail. Among them are technologies related to reducing vehicle's 
electrical loads, such as High Efficiency Exterior Lights, Engine Heat 
Recovery, and Solar Roof Panels. In an effort to streamline the process 
for approving off-cycle credits, we have set a relatively conservative 
estimate of the credit based on our efficacy analysis. EPA seeks 
comment on utilizing the model in order to quantify the credits more 
accurately, if actual data of electrical load reduction and/or on-board 
electricity generation by one or more of these technologies is 
available through data submission from manufacturers. Similarly, there 
are

[[Page 74944]]

technologies that would provide additional GHG reduction benefits in 
the 5-cycle test by actively reducing the vehicle's aerodynamic drag 
forces. These are referred to as active aerodynamic technologies, which 
include but are not limited to active grill shutters and active 
suspension lowering. Like the electrical load reduction technologies, 
the vehicle simulation tool can be used to more accurately estimate the 
additional GHG reductions (therefore the credits) provided by these 
active aerodynamic technologies over the 5-cycle drive test. EPA seeks 
comment on using the simulation tool in order to quantify these 
credits. In order to do this properly, manufacturers would be expected 
to submit two sets of coast-down coefficients (with and without the 
active aerodynamic technologies). Or, they could submit two sets of 
aerodynamic drag coefficient (with and without the active aerodynamic 
technologies) as a function of vehicle speed.
    There are other technologies that would result in additional GHG 
reduction benefits that cannot be fully captured on the combined FTP/
Highway cycle test. These technologies typically reduce engine loads by 
utilizing advanced engine controls, and they range from enabling the 
vehicle to turn off the engine at idle, to reducing cabin temperature 
and thus A/C compressor loading when the vehicle is restarted. Examples 
include Engine Start-Stop, Electric Heater Circulation Pump, Active 
Engine/Transmission Warm-Up, and Solar Control. For these types of 
technologies, the overall GHG reduction largely depends on the control 
and calibration strategies of individual manufacturers and vehicle 
types. Also, the current vehicle simulation tool does not have the 
capability to properly simulate the vehicle behaviors that depend on 
thermal conditions of the vehicle and its surroundings, such as Active 
Engine/Transmission Warm-Up and Solar Control. Therefore, the vehicle 
simulation may not provide full benefits of the technologies on the GHG 
reductions. For this reason, the agency is not proposing to use the 
simulation tool to generate the GHG credits for these technologies at 
this time, though future versions of the model may be more capable of 
quantifying the efficacy of these off-cycle technologies as well.
3. Advanced Technology Incentives for Full Sized Pickup Trucks
    The agencies recognize that the standards under consideration for 
MY 2017-2025 will be most challenging to large trucks, including full 
size pickup trucks that are often used for commercial purposes and have 
generally higher payload and towing capabilities, and cargo volumes 
than other light-duty vehicles. In Section II.C and Chapter 2 of the 
joint TSD, EPA and NHTSA describe the proposal to adjust the slope of 
the truck curve compared to the 2012-2016 rule. In Sections III.B and 
IV.F, EPA and NHTSA describe the progression of the truck standards. In 
this section, the agencies describe a credit and fuel consumption 
improvement value for full size pickup trucks to incentivize advanced 
technologies on this class of vehicles.
    The agencies' goal is to incentivize the penetration into the 
marketplace of ``game changing'' technologies for these pickups, 
including their hybridization. For that reason, EPA, in coordination 
with NHTSA, is proposing credits and corresponding equivalent fuel 
consumption improvement values for manufacturers that hybridize a 
significant quantity of their full size pickup trucks, or use other 
technologies that significantly reduce CO2 emissions and 
fuel consumption. This proposed credit and corresponding equivalent 
fuel consumption improvement value would be available on a per-vehicle 
basis for mild and strong HEVs, as well as other technologies that 
significantly improve the efficiency of the full sized pickup 
class.\170\ The credits and fuel consumption improvement values would 
apply for purposes of compliance with both the GHG emissions standards 
and the CAFE standards. This provides the incentive to begin 
transforming this most challenging category of vehicles toward use of 
the most advanced technologies.
---------------------------------------------------------------------------

    \170\ Note that EPA's proposed calculation methodology in 40 CFR 
600.510-12 does not use vehicle-specific fuel consumption 
adjustments to determine the CAFE increase due to the various 
incentives allowed under the proposed program. Instead, EPA would 
convert the total CO2 credits due to each incentive 
program from metric tons of CO2 to a fleetwide CAFE 
improvement value. The fuel consumption values are presented to give 
the reader some context and explain the relationship between 
CO2 and fuel consumption improvements.
---------------------------------------------------------------------------

    Access to this credit and fuel consumption improvement value is 
conditioned on a minimum penetration of the technologies in a 
manufacturer's full size pickup truck fleet. To ensure its use for only 
full sized pickup trucks, EPA is proposing a very specific definition 
for a full sized pickup truck based on minimum bed size and minimum 
towing capability. The specifics of this proposed definition can be 
found in Chapter 5 of the draft joint TSD (see Section 5.3.1). This 
proposed definition is meant to ensure that smaller pickup trucks, 
which do not offer the same level of utility (e.g., bed size, towing 
capability and/or payload capability) and thus may not face the same 
technical challenges to improving fuel economy and reducing 
CO2 emissions as compared to full sized pickup trucks, do 
not qualify.\171\ For this proposal, a full sized pickup truck would be 
defined as meeting requirements 1 and 2, below, as well as either 
requirement 3 or 4, below:
---------------------------------------------------------------------------

    \171\ As discussed in TSD Section 5.3.1, EPA is seeking comment 
on expanding the scope of this credit to somewhat smaller pickups, 
provided they have the towing and/or hauling capabilities of the 
larger full-size trucks.
---------------------------------------------------------------------------

    1. The vehicle must have an open cargo box with a minimum width 
between the wheelhouses of 48 inches measured as the minimum lateral 
distance between the limiting interferences (pass-through) of the 
wheelhouses. The measurement would exclude the transitional arc, local 
protrusions, and depressions or pockets, if present.\172\ An open cargo 
box means a vehicle where the cargo bed does not have a permanent roof 
or cover. Vehicles sold with detachable covers are considered ``open'' 
for the purposes of these criteria.
---------------------------------------------------------------------------

    \172\ This dimension is also known as dimension W202 as defined 
in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    2. Minimum open cargo box length of 60 inches defined by the lesser 
of the pickup bed length at the top of the body (defined as the 
longitudinal distance from the inside front of the pickup bed to the 
inside of the closed endgate; this would be measured at the height of 
the top of the open pickup bed along vehicle centerline and the pickup 
bed length at the floor) and the pickup bed length at the floor 
(defined as the longitudinal distance from the inside front of the 
pickup bed to the inside of the closed endgate; this would be measured 
at the cargo floor surface along vehicle centerline).\173\
---------------------------------------------------------------------------

    \173\ The pickup body length at the top of the body is also 
known as dimension L506 in Society of Automotive Engineers Procedure 
J1100. The pickup body length at the floor is also known as 
dimension L505 in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    3. Minimum Towing Capability--the vehicle must have a GCWR (gross 
combined weight rating) minus GVWR (gross vehicle weight rating) value 
of at least 5,000 pounds.\174\
---------------------------------------------------------------------------

    \174\ Gross combined weight rating means the value specified by 
the vehicle manufacturer as the maximum weight of a loaded vehicle 
and trailer, consistent with good engineering judgment. Gross 
vehicle weight rating means the value specified by the vehicle 
manufacturer as the maximum design loaded weight of a single 
vehicle, consistent with good engineering judgment. Curb weight is 
defined in 40 CFR 86.1803, consistent with the provisions of 40 CFR 
1037.140.

---------------------------------------------------------------------------

[[Page 74945]]

    4. Minimum Payload Capability--the vehicle must have a GVWR (gross 
vehicle weight rating) minus curb weight value of at least 1,700 
pounds.
    The technical basis for these proposed definitions is found in 
Section III.C below and Chapter 5 of the joint TSD. EPA is proposing 
that mild HEV pickup trucks would be eligible for a per-truck 10 g/mi 
CO2 credit (equal to a 0.001125 gal/mi fuel consumption 
improvement value) during MYs 2017-2021 if the mild HEV technology is 
used on a minimum percentage of a company's full sized pickups. That 
minimum percentage would be 30 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 80 percent of 
production in MY 2021.
    EPA is also proposing that strong HEV pickup trucks would be 
eligible for a per-truck 20 g/mi CO2 credit (equal to a 
0.002250 gal/mi fuel consumption improvement value) during MYs 2017-
2025 if the strong HEV technology is used on a minimum percentage of a 
company's full sized pickups. That minimum percentage would be 10 
percent of a company's full sized pickup production in each year over 
the model years 2017-2025.
    To ensure that the hybridization technology used by manufacturers 
seeking one of these credits and fuel consumption improvement values 
meets the intent behind the incentives, EPA is proposing very specific 
definitions of what qualifies as a mild and a strong HEV. These 
definitions are described in detail in Chapter 5 of the draft joint TSD 
(see section 5.3.3).
    For similar reasons, EPA is also proposing a performance-based 
incentive credit and equivalent fuel consumption improvement value for 
full size pickup trucks that achieve an emission level significantly 
below the applicable target.\175\ EPA, in coordination with NHTSA, 
proposes this credit to be either 10 g/mi CO2 (equivalent to 
0.001125 gal/mi for the CAFE program) or 20 g/mi CO2 
(equivalent to 0.002250 gal/mi for the CAFE program) for pickups 
achieving 15 percent or 20 percent, respectively, better CO2 
than their footprint based target in a given model year. Because the 
footprint target curve has been adjusted to account for A/C related 
credits, the CO2 level to be compared with the target would 
also include any A/C related credits generated by the vehicle. Further 
details on this performance-based incentive are in Section III.C below 
and in Chapter 5 of the draft joint TSD (see Section 5.3.4). The 10 g/
mi (equivalent to 0.001125 gal/mi) performance-based credit and fuel 
consumption improvement value would be available for MYs 2017 to 2021 
and a vehicle meeting the requirements would receive the credit and 
fuel consumption improvement value until MY 2021 unless its 
CO2 level increases or fuel economy decreases. The 20 g/mi 
CO2 (equivalent to 0.0023 gal/mi fuel consumption 
improvement value) performance-based credit would be available for a 
maximum of 5 years within the model years of 2017 to 2025, provided its 
CO2 level and fuel consumption does not increase. The 
rationale for these limits is because of the year over year progression 
of the stringency of the truck target curves. The credits and fuel 
consumption improvement values would begin in the model year of 
introduction, and could not extend past MY 2021 for the 10 g/mi credit 
(equivalent to 0.001125 gal/mi) and MY 2025 for the 20 g/mi credit 
(equivalent to 0.002250 gal/mi).
---------------------------------------------------------------------------

    \175\ The 15 and 20 percent thresholds would be based on 
CO2 performance compared to the applicable CO2 
vehicle target for both CO2 credits and corresponding 
CAFE fuel consumption improvement values. As with A/C and off-cycle 
credits, EPA would convert the total CO2 credits due to 
the pick-up incentive program from metric tons of CO2 to 
a fleetwide equivalent CAFE improvement value.
---------------------------------------------------------------------------

    As with the HEV-based credit and fuel consumption improvement 
value, the performance-based credit and fuel consumption improvement 
value requires that the technology be used on a minimum percentage of a 
manufacturer's full-size pickup trucks. That minimum percentage for the 
10 g/mi GHG credit (equivalent to 0.001125 gal/mi fuel consumption 
improvement value) would be 15 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 40 percent of 
production in MY 2021. The minimum percentage for the 20 g/mi credit 
(equivalent to 0.002250 gal/mi fuel consumption improvement value) 
would be 10 percent of a company's full sized pickup production in each 
year over the model years 2017-2025.
    Importantly, the same vehicle could not receive credit and fuel 
consumption improvement under both the HEV and the performance-based 
approaches. EPA and NHTSA request comment on all aspects of this 
proposed pickup truck incentive credit and fuel consumption improvement 
value, including the proposed definitions for full sized pickup truck 
and mild and strong HEV.

G. Safety Considerations in Establishing CAFE/GHG Standards

1. Why do the agencies consider safety?
    The primary goals of the proposed CAFE and GHG standards are to 
reduce fuel consumption and GHG emissions from the on-road light-duty 
vehicle fleet, but in addition to these intended effects, the agencies 
also consider the potential of the standards to affect vehicle 
safety.\176\ As a safety agency, NHTSA has long considered the 
potential for adverse safety consequences when establishing CAFE 
standards,\177\ and under the CAA, EPA considers factors related to 
public health and human welfare, and safety, in regulating emissions of 
air pollutants from mobile sources.\178\ Safety trade-offs associated 
with fuel economy increases have occurred in the past (particularly 
before NHTSA CAFE standards were attribute-based), and the agencies 
must be mindful of the possibility of future ones. These past safety 
trade-offs may have occurred because manufacturers chose, at the time, 
to build smaller and lighter vehicles--partly in response to CAFE 
standards--rather than adding more expensive fuel-saving technologies 
(and maintaining vehicle size and safety), and the smaller and lighter 
vehicles did not fare as well in crashes as larger and heavier 
vehicles. Historically, as shown in FARS data analyzed by NHTSA, the 
safest cars generally have been heavy and large, while the cars with 
the highest fatal-crash rates have been light and small. The question, 
then, is whether past is necessarily prologue when it comes to 
potential changes in vehicle size (both footprint and ``overhang'') and 
mass in response to these proposed future CAFE and GHG standards. 
Manufacturers have stated that they will reduce vehicle mass as one of 
the cost-effective means of increasing fuel economy and reducing 
CO2 emissions in order to meet the proposed standards, and 
the

[[Page 74946]]

agencies have incorporated this expectation into our modeling analysis 
supporting the proposed standards. Because the agencies discern a 
historical relationship between vehicle mass, size, and safety, it is 
reasonable to assume that these relationships will continue in the 
future. The question of whether vehicle design can mitigate the adverse 
effects of mass reduction is discussed below.
---------------------------------------------------------------------------

    \176\ In this rulemaking document, ``vehicle safety'' is defined 
as societal fatality rates per vehicle miles traveled (VMT), which 
include fatalities to occupants of all the vehicles involved in the 
collisions, plus any pedestrians.
    \177\ This practice is recognized approvingly in case law. As 
the United States Court of Appeals for the DC Circuit stated in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (``CEI I''), 
901 F.2d 107, 120 at n. 11 (DC Cir. 1990).
    \178\ See NRDC v. EPA, 655 F. 2d 318, 332 n. 31 (DC Cir. 1981). 
(EPA may consider safety in developing standards under section 202 
(a) and did so appropriately in the given instance).
---------------------------------------------------------------------------

    Manufacturers are less likely than they were in the past to reduce 
vehicle footprint in order to reduce mass for increased fuel economy. 
The primary mechanism in this rulemaking for mitigating the potential 
negative effects on safety is the application of footprint-based 
standards, which create a disincentive for manufacturers to produce 
smaller-footprint vehicles. See section II. C.1, above. This is 
because, as footprint decreases, the corresponding fuel economy/GHG 
emission target becomes more stringent. We also believe that the shape 
of the footprint curves themselves is approximately ``footprint-
neutral,'' that is, that it should neither encourage manufacturers to 
increase the footprint of their fleets, nor to decrease it. Upsizing 
footprint is also discouraged through the curve ``cut-off'' at larger 
footprints.\179\ However, the footprint-based standards do not 
discourage downsizing the portions of a vehicle in front of the front 
axle and to the rear of the rear axle, or of other areas of the vehicle 
outside the wheels. The crush space provided by those portions of a 
vehicle can make important contributions to managing crash energy. 
Additionally, simply because footprint-based standards create no 
incentive to downsize vehicles does not mean that manufacturers will 
not downsize if doing so makes it easier to meet the overall CAFE/GHG 
standard, as for example if the smaller vehicles are so much lighter 
that they exceed their targets by much greater amounts. On balance, 
however, we believe the target curves and the incentives they provide 
generally will not encourage down-sizing (or up-sizing) in terms of 
footprint reductions (or increases).\180\ Consequently, all of our 
analyses are based on the assumption that this rulemaking, in and of 
itself, will not result in any differences in the sales weighted 
distribution of vehicle sizes.
---------------------------------------------------------------------------

    \179\ The agencies recognize that at the other end of the curve, 
manufacturers who make small cars and trucks below 41 square feet 
(the small footprint cut-off point) have some incentive to downsize 
their vehicles to make it easier to meet the constant target. That 
cut-off may also create some incentive for manufacturers who do not 
currently offer models that size to do so in the future. However, at 
the same time, the agencies believe that there is a limit to the 
market for cars and trucks smaller than 41 square feet: most 
consumers likely have some minimum expectation about interior 
volume, for example, among other things. Additionally, vehicles in 
this segment are the lowest price point for the light-duty 
automotive market, with several models in the $10,000-$15,000 range. 
Manufacturers who find themselves incentivized by the cut-off will 
also find themselves adding technology to the lowest price segment 
vehicles, which could make it challenging to retain the price 
advantage. Because of these two reasons, the agencies believe that 
the incentive to increase the sales of vehicles smaller than 41 
square feet due to this rulemaking, if any, is small. See Section 
II.C.1 above and Chapter 1 of the draft Joint TSD for more 
information on the agencies' choice of ``cut-off'' points for the 
footprint-based target curves.
    \180\ This statement makes no prediction of how consumer choices 
of vehicle size will change in the future, independent of this 
proposal.
---------------------------------------------------------------------------

    Given that we expect manufacturers to reduce vehicle mass in 
response to the proposed standards, and do not expect manufacturers to 
reduce vehicle footprint in response to the proposed standards, the 
agencies must attempt to predict the safety effects, if any, of the 
proposed standards based on the best information currently available. 
This section explained why the agencies consider safety; the following 
section discusses how the agencies consider safety.
2. How do the agencies consider safety?
    Assessing the effects of vehicle mass reduction and size on 
societal safety is a complex issue. One part of estimating potential 
safety effects involves trying to understand better the relationship 
between mass and vehicle design. The extent of mass reduction that 
manufacturers may be considering to meet more stringent fuel economy 
and GHG standards may raise different safety concerns from what the 
industry has previously faced. The principal difference between the 
heavier vehicles, especially truck-based LTVs, and the lighter 
vehicles, especially passenger cars, is that mass reduction has a 
different effect in collisions with another car or LTV. When two 
vehicles of unequal mass collide, the change in velocity (delta V) is 
higher in the lighter vehicle, similar to the mass ratio proportion. As 
a result of the higher change in velocity, the fatality risk may also 
increase. Removing more mass from the heavier vehicle than in the 
lighter vehicle by amounts that bring the mass ratio closer to 1.0 
reduces the delta V in the lighter vehicle, possibly resulting in a net 
societal benefit.
    Another complexity is that if a vehicle is made lighter, 
adjustments must be made to the vehicle's structure such that it will 
be able to manage the energy in a crash while limiting intrusion into 
the occupant compartment after adopting materials that may be stiffer. 
To maintain an acceptable occupant compartment deceleration, the 
effective front end stiffness has to be managed such that the crash 
pulse does not increase as stiffer yet lighter materials are utilized. 
If the energy is not well managed, the occupants may have to ``ride 
down'' a more severe crash pulse, putting more burdens on the restraint 
systems to protect the occupants. There may be technological and 
physical limitations to how much the restraint system may mitigate 
these effects.
    The agencies must attempt to estimate now, based on the best 
information currently available to us, how the assumed levels of mass 
reduction without additional changes (i.e. footprint, performance, 
functionality) might affect the safety of vehicles, and how lighter 
vehicles might affect the safety of drivers and passengers in the 
entire on-road fleet, as we are analyzing potential future CAFE and GHG 
standards. The agencies seek to ensure that the standards are designed 
to encourage manufacturers to pursue a path toward compliance that is 
both cost-effective and safe.
    To estimate the possible safety effects of the MY 2017-2025 
standards, then, the agencies have undertaken research that approaches 
this question from several angles. First, we are using a statistical 
approach to study the effect of vehicle mass reduction on safety 
historically, as discussed in greater detail in section C below. 
Statistical analysis is performed using the most recent historical 
crash data available, and is considered as the agencies' best estimate 
of potential mass-safety effects. The agencies recognize that negative 
safety effects estimated based on the historical relationships could 
potentially be tempered with safety technology advances in the future, 
and may not represent the current or future fleet. Second, we are using 
an engineering approach to investigate what amount of mass reduction is 
affordable and feasible while maintaining vehicle safety and other 
major functionalities such as NVH and acceleration performance. Third, 
we are also studying the new challenges these lighter vehicles might 
bring to vehicle safety and potential countermeasures available to 
manage those challenges effectively.
    The sections below discuss more specifically the state of the 
research on the mass-safety relationship, and how the agencies 
integrate that research into our assessment of the potential safety 
effects of the MY 2017-2025 CAFE and GHG standards.

[[Page 74947]]

3. What is the current state of the research on statistical analysis of 
historical crash data?
a. Background
    Researchers have been using statistical analysis to examine the 
relationship of vehicle mass and safety in historical crash data for 
many years, and continue to refine their techniques over time. In the 
MY 2012-2016 final rule, the agencies stated that we would conduct 
further study and research into the interaction of mass, size and 
safety to assist future rulemakings, and start to work collaboratively 
by developing an interagency working group between NHTSA, EPA, DOE, and 
CARB to evaluate all aspects of mass, size and safety. The team would 
seek to coordinate government supported studies and independent 
research, to the greatest extent possible, to help ensure the work is 
complementary to previous and ongoing research and to guide further 
research in this area.
    The agencies also identified three specific areas to direct 
research in preparation for future CAFE/GHG rulemaking in regards to 
statistical analysis of historical data.
    First, NHTSA would contract with an independent institution to 
review the statistical methods that NHTSA and DRI have used to analyze 
historical data related to mass, size and safety, and to provide 
recommendation on whether the existing methods or other methods should 
be used for future statistical analysis of historical data. This study 
will include a consideration of potential near multicollinearity in the 
historical data and how best to address it in a regression analysis. 
The 2010 NHTSA report was also peer reviewed by two other experts in 
the safety field--Charles Farmer (Insurance Institute for Highway 
Safety) and Anders Lie (Swedish Transport Administration).\181\
---------------------------------------------------------------------------

    \181\ All three of the peer reviews are in docket, NHTSA-2010-
0152. You can access the docket at http://www.regulations.gov/#!home 
by typing `NHTSA-2010-0152' where it says ``enter keyword or ID'' 
and then clicking on ``Search.''
---------------------------------------------------------------------------

    Second, NHTSA and EPA, in consultation with DOE, would update the 
MYs 1991-1999 database on which the safety analyses in the NPRM and 
final rule are based with newer vehicle data, and create a common 
database that could be made publicly available to help address concerns 
that differences in data were leading to different results in 
statistical analyses by different researchers.
    And third, in order to assess if the design of recent model year 
vehicles that incorporate various mass reduction methods affect the 
relationships among vehicle mass, size and safety, the agencies sought 
to identify vehicles that are using material substitution and smart 
design, and to try to assess if there is sufficient crash data 
involving those vehicles for statistical analysis. If sufficient data 
exists, statistical analysis would be conducted to compare the 
relationship among mass, size and safety of these smart design vehicles 
to vehicles of similar size and mass with more traditional designs.
    Significant progress has been made on these tasks since the MY 
2012-2016 final rule, as follows: The independent review of recent and 
updated statistical analyses of the relationship between vehicle mass, 
size, and crash fatality rates has been completed. NHTSA contracted 
with the University of Michigan Transportation Research Institute 
(UMTRI) to conduct this review, and the UMTRI team led by Paul Green 
evaluated over 20 papers, including studies done by NHTSA's Charles 
Kahane, Tom Wenzel of the US Department of Energy's Lawrence Berkeley 
National Laboratory, Dynamic Research, Inc., and others. UMTRI's basic 
findings will be discussed below. Some commenters in recent CAFE 
rulemakings, including some vehicle manufacturers, suggested that the 
designs and materials of more recent model year vehicles may have 
weakened the historical statistical relationships between mass, size, 
and safety. The agencies agree that the statistical analysis would be 
improved by using an updated database that reflects more recent safety 
technologies, vehicle designs and materials, and reflects changes in 
the overall vehicle fleet. The agencies also believe, as UMTRI also 
found, that different statistical analyses may have had different 
results because they each used slightly different datasets for their 
analyses. In order to try to mitigate this problem and to support the 
current rulemaking, NHTSA has created a common, updated database for 
statistical analysis that consists of crash data of model years 2000-
2007 vehicles in calendar years 2002-2008, as compared to the database 
used in prior NHTSA analyses which was based on model years 1991-1999 
vehicles in calendar years 1995-2000. The new database is the most up-
to-date possible, given the processing lead time for crash data and the 
need for enough crash cases to permit statistically meaningful 
analyses. NHTSA has made the new databases available to the 
public,\182\ enabling other researchers to analyze the same data and 
hopefully minimizing discrepancies in the results that would have been 
due to inconsistencies across databases.\183\ The agencies recognize, 
however, that the updated database may not represent the future fleet, 
because vehicles have continued and will continue to change.
---------------------------------------------------------------------------

    \182\ The new databases are available at http://www.nhtsa.gov/fuel-economy (look for ``Download Crash Databases for Statistical 
Analysis of Relationships Between Vehicles' Fatality Risk, Mass, and 
Footprint.''
    \183\ 75 Fed. Reg. 25324 (May 7, 2010); the discussion of 
planned statistical analyses is on pp. 25395-25396.
---------------------------------------------------------------------------

    The agencies are aware that several studies have been initiated 
using NHTSA's 2011 newly established safety database. In addition to a 
new Kahane study, which is discussed in section II.G.4, other on-going 
studies include two by Wenzel at Lawrence Berkeley National Laboratory 
(LBNL) under contract with the U.S. DOE, and one by Dynamic Research, 
Inc. (DRI) contracted by the International Council on Clean 
Transportation (ICCT). These studies may take somewhat different 
approaches to examine the statistical relationship between fatality 
risk, vehicle mass and size. In addition to a detailed assessment of 
the NHTSA 2011 report, Wenzel is expected to consider the effect of 
mass and footprint reduction on casualty risk per crash, using data 
from thirteen states. Casualty risk includes both fatalities and 
serious or incapacitating injuries. DRI is expected to use a two-stage 
approach to separate the effect of mass reduction on two components of 
fatality risk, crash avoidance and crashworthiness. The LBNL assessment 
of the NHTSA 2011 report is available in the docket for this NPRM.\184\ 
The casualty risk effect study was not available in time to inform this 
NPRM. The completed final peer reviewed-report on both assessments will 
be available prior to the final rule. DRI has also indicated that it 
expects its study to be publicly available prior to the final rule. The 
agencies will consider these studies and any others that become 
available, and the results may influence the safety analysis for the 
final rule.
---------------------------------------------------------------------------

    \184\ Wenzel, T.P. (2011b). Assessment of NHTSA's Report 
``Relationships between Fatality Risk, Mass, and Footprint in Model 
Year 2000-2007 Passenger Cars and LTVs'', available at[hellip]
---------------------------------------------------------------------------

    Other researchers are free to download the database from NHTSA's 
Web site, and we expect to see additional papers in the coming months 
and as comments to the rulemaking that may also inform our 
consideration of these issues for the final rule. Kahane's updated 
study for 2011 is currently undergoing peer-review, and is available

[[Page 74948]]

in the docket for this rulemaking for review by commenters.
    Finally, EPA and NHTSA with DOT's Volpe Center, part of the 
Research and Innovative Technology Administration (RITA), attempted to 
investigate the implications of ``Smart Design,'' by identifying and 
describing the types of ``Smart Design'' and methods for using ``Smart 
Design'' to result in vehicle mass reduction, selecting analytical 
pairs of vehicles, and using the appropriate crash database to analyze 
vehicle crash data. The analysis identified several one-vehicle and 
two-vehicle crash datasets with the potential to shed light on the 
issue, but the available data for specific crash scenarios was 
insufficient to produce consistent results that could be used to 
support conclusions regarding historical performance of ``smart 
designs.''
    Undertaking these tasks has helped the agencies come closer to 
resolving some of the ongoing debates in statistical analysis research 
of historical crash data. We intend to apply these conclusions going 
forward, and we believe that the public discussion of the issues will 
be facilitated by the research conducted. The following sections 
discuss the findings from these studies and others in greater detail, 
to present a more nuanced picture of the current state of the 
statistical research.
b. NHTSA Workshop on Vehicle Mass, Size and Safety
    On February 25, 2011, NHTSA hosted a workshop on mass reduction, 
vehicle size, and fleet safety at the Headquarters of the U.S. 
Department of Transportation in Washington, DC.\185\ The purpose of the 
workshop was to provide the agencies with a broad understanding of 
current research in the field and provide stakeholders and the public 
with an opportunity to weigh in on this issue. NHTSA also created a 
public docket to receive comments from interested parties that were 
unable to attend.
---------------------------------------------------------------------------

    \185\ A video recording, transcript, and the presentations from 
the NHTSA workshop on mass reduction, vehicle size and fleet safety 
is available at http://www.nhtsa.gov/fuel-economy (look for ``NHTSA 
Workshop on Vehicle Mass-Size-Safety on Feb. 25'')
---------------------------------------------------------------------------

    The speakers included Charles Kahane of NHTSA, Tom Wenzel of 
Lawrence Berkeley National Laboratory, R. Michael Van Auken of Dynamic 
Research Inc. (DRI), Jeya Padmanaban of JP Research, Inc., Adrian Lund 
of the Insurance Institute for Highway Safety, Paul Green of the 
University of Michigan Transportation Research Institute (UMTRI), 
Stephen Summers of NHTSA, Gregg Peterson of Lotus Engineering, Koichi 
Kamiji of Honda, John German of the International Council on Clean 
Transportation (ICCT), Scott Schmidt of the Alliance of Automobile 
Manufacturers, Guy Nusholtz of Chrysler, and Frank Field of the 
Massachusetts Institute of Technology.
    The wide participation in the workshop allowed the agencies to hear 
from a broad range of experts and stakeholders. The contributions were 
particularly relevant to the agencies' analysis of the effects of 
weight reduction for this proposed rule. The presentations were divided 
into two sessions that addressed the two expansive sets of issues--
statistical evidence of the roles of mass and size on safety, and 
engineering realities--structural crashworthiness, occupant injury and 
advanced vehicle design.
    The first session focused on previous and ongoing statistical 
studies of crash data that attempt to identify the relative effects of 
vehicle mass and size on fleet safety. There was consensus that there 
is a complicated relationship with many confounding influences in the 
data. Wenzel summarized a recent study he conducted comparing four 
types of risk (fatality or casualty risk, per vehicle registration-
years or per crash) using police-reported crash data from five 
states.\186\ He showed that the trends in risk for various classes of 
vehicles (e.g., non-sports car passenger cars, vans, SUVs, crossover 
SUVs, pickups) were similar regardless of what risk was being measured 
(fatality or casualty) or what exposure metric was used (e.g., 
registration years, police-reported crashes, etc.). In general, most 
trends showed a lower risk for drivers of larger, heavier vehicles.
---------------------------------------------------------------------------

    \186\ Wenzel, T.P. (2011a). Analysis of Casualty Risk per 
Police-Reported Crash for Model Year 2000 to 2004 Vehicles, using 
Crash Data from Five States, March 2011, LBNL-4897E, available at: 
http://eetd.lbl.gov/EA/teepa/pub.html#Vehicle
---------------------------------------------------------------------------

    Although Wenzel's analysis was focused on differences in the four 
types of risk on the relative risk by vehicle type, he cautioned that, 
when analyzing casualty risk per crash, analysts should control for 
driver age and gender, crash location (urban vs. rural), and the state 
in which the crash occurred (to account for crash reporting biases).
    Several participants pointed out that analyses must also control 
for individual technologies with significant safety effects (e.g., 
Electronic Stability Control, airbags).It was not always conclusive 
whether a specialty vehicle group (e.g., sports cars, two-door cars, 
early crossover SUVs) were outliers that confound the trend or unique 
datasets that isolate specific vehicle characteristics. Unfortunately, 
specialty vehicle groups are usually adopted by specific driver groups, 
often with outlying vehicle usage or driver behavior patterns. Green, 
who conducted an independent review of the previous statistical 
analyses, suggested that evaluating residuals will give an indication 
of whether or not a data subset can be legitimately removed without 
inappropriately affecting the analytical results.
    It was recognized that the physics of a two-vehicle crash require 
that the lighter vehicle experience a greater change in velocity, which 
often leads to disproportionately more injury risk. Lund noted 
persistent historical trends that, in any time period, occupants of the 
smallest and lightest vehicles had, on average, fatality rates 
approximately twice those of occupants of the largest and heaviest 
vehicles but predicted ``the sky will not fall'' as the fleet 
downsizes, we will not see an increase in absolute injury risk because 
smaller cars will become increasingly protective of their occupants. 
Padmanaban also noted in her research of the historical trends that 
mass ratio and vehicle stiffness are significant predictors with mass 
ratio consistently the dominant parameter when correlating harm. 
Reducing the mass of any vehicle may have competing societal effects as 
it increases the injury risk in the lightened vehicle and decreases 
them in the partner vehicle
    The separation of key parameters was also discussed as a challenge 
to the analyses, as vehicle size has historically been highly 
correlated with vehicle mass. Presenters had varying approaches for 
dealing with the potential multicollinearity between these two 
variables. Van Auken of DRI stated that there was latitude in the value 
of Variance Inflation Factor (VIF, a measure of multicollinearity) that 
would call results into question, and suggested that the large value of 
VIF for curb weight might imply ``perhaps the effect of weight is too 
small in comparison to other factors.'' Green, of UMTRI, stated that 
highly correlated variables may not be appropriate for use in a 
predictive model and that ``match[ing] on footprint'' (i.e., conducting 
multiple analyses for data subsets with similar footprint values) may 
be the most effective way to resolve the issue.
    There was no consensus on the overall effect of the maneuverability 
of smaller, lighter vehicles. German noted that lighter vehicles should 
have improved handling and braking characteristics and ``may be more 
likely to avoid collisions''. Lund presented

[[Page 74949]]

crash involvement data that implied that, among vehicles of similar 
function and use rates, crash risk does not go down for more ``nimble'' 
vehicles. Several presenters noted the difficulties of projecting past 
data into the future as new technologies will be used that were not 
available when the data were collected. The advances in technology 
through the decades have dramatically improved safety for all weight 
and size classes. A video of IIHS's 50th anniversary crash test of a 
1959 Chevrolet Bel Air and 2009 Chevrolet Malibu graphically 
demonstrated that stark differences in design and technology that can 
possibly mask the discrete mass effects, while videos of compatibility 
crash tests between smaller, lighter vehicles and contemporary larger, 
heavier vehicles graphically showed the significance of vehicle mass 
and size.
    Kahane presented results from his 2010 report\187\ that found that 
a scenario which took some mass out of heavier vehicles but little or 
no mass out of the lightest vehicles did not impact safety in absolute 
terms. Kahane noted that if the analyses were able to consider the mass 
of both vehicles in a two-vehicle crash, the results may be more 
indicative of future crashes. There is apparent consistency with other 
presentations (e.g., Padmanaban, Nusholtz) that reducing the overall 
ranges of masses and mass ratios seems to reduce overall societal harm. 
That is, the effect of mass reduction exclusively does not appear to be 
a ``zero sum game'' in which any increase in harm to occupants of the 
lightened vehicle is precisely offset by a decrease in harm to the 
occupants of the partner vehicle. If the mass of the heavier vehicle is 
reduced by a larger percentage, the changes in velocity from the 
collision are more nearly equal and the injuries suffered in the 
lighter vehicle are likely to be reduced more than the injuries in the 
heavier vehicle are increased. Alternatively, a fixed mass reduction 
(say, 100 lbs) in all vehicles could increase societal harm whereas a 
fixed percentage mass reduction is more likely to be neutral.
---------------------------------------------------------------------------

    \187\ Kahane, C. J. (2010). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 1991-1999 and Other 
Passenger Cars and LTVs,'' Final Regulatory Impact Analysis: 
Corporate Average Fuel Economy for MY 2012-MY 2016 Passenger Cars 
and Light Trucks. Washington, DC: National Highway Traffic Safety 
Administration, pp. 464-542, available at http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/CAFE_2012-2016_FRIA_04012010.pdf.
---------------------------------------------------------------------------

    Padmanaban described a series of studies conducted in recent years. 
She included numerous vehicle parameters including bumper height and 
several measures of vehicle size and stiffness and also commented on 
previous analyses that using weight and wheelbase together in a 
logistic model distorts the estimates, resulting in inflated variance 
with wrong signs and magnitudes in the results. Her results 
consistently showed that vehicle mass ratio was a more important 
parameter than those describing vehicle geometry or stiffness. Her 
ultimate conclusion was that removing mass (e.g., 100 lbs.) from all 
passenger cars would cause an overall increase in fatalities in truck-
to-car crashes while removing the same amount from light trucks would 
cause an overall decrease in fatalities.
c. Report by Green et al., UMTRI--``Independent Review: Statistical 
Analyses of Relationship Between Vehicle Curb Weight, Track Width, 
Wheelbase and Fatality Rates,'' April 2011.
    As explained above, NHTSA contracted with the University of 
Michigan Transportation Research Institute (UMTRI) to conduct an 
independent review ;\188\ of a set of statistical analyses of 
relationships between vehicle curb weight, the footprint variables 
(track width, wheelbase) and fatality rates from vehicle crashes. The 
purpose of this review was to examine analysis methods, data sources, 
and assumptions of the statistical studies, with the objective of 
identifying the reasons for any differences in results. Another 
objective was to examine the suitability of the various methods for 
estimating the fatality risks of future vehicles.
---------------------------------------------------------------------------

    \188\ The review is independent in the sense that it was 
conducted by an outside third party without any interest in the 
reported outcome.
---------------------------------------------------------------------------

    UMTRI reviewed a set of papers, reports, and manuscripts provided 
by NHTSA (listed in Appendix A of UMTRI's report, which is available in 
the docket to this rulemaking) that examined the statistical 
relationships between fatality or casualty rates and vehicle properties 
such as curb weight, track width, wheelbase and other variables.
    It is difficult to summarize a study of that length and complexity 
for purposes of this discussion, but fundamentally, the UMTRI team 
concluded the following:
     Differences in data may have complicated comparisons of 
earlier analyses, but if the methodology is robust, and the methods 
were applied in a similar way, small changes in data should not lead to 
different conclusions. The main conclusions and findings should be 
reproducible. The data base created by Kahane appears to be an 
impressive collection of files from appropriate sources and the best 
ones available for answering the research questions considered in this 
study.
     In statistical analysis simpler models generally lead to 
improved inference, assuming the data and model assumptions are 
appropriate. In that regard, the disaggregate logistic regression model 
used by NHTSA in the 2003 report \189\ seems to be the most appropriate 
model, and valid for the analysis in the context that it was used: 
finding general associations between fatality risk and mass--and the 
general directions of the reported associations are correct.
---------------------------------------------------------------------------

    \189\
---------------------------------------------------------------------------

     The two-stage logistic regression model in combination 
with the two-step aggregate regression used by DRI seems to be more 
complicated than is necessary based on the data being analyzed, and 
summing regression coefficients from two separate models to arrive at 
conclusions about the effects of reductions in weight or size on 
fatality risk seems to add unneeded complexity to the problem.
     One of the biggest issues regarding this work is the 
historical correlation between curb weight, wheelbase, and track width. 
Including three variables that are highly correlated in the same model 
can have adverse effects on the fit of the model, especially with 
respect to the parameter estimates, as discussed by Kahane. UMTRI makes 
no conclusions about multicollinearity, other than to say that 
inferences made in the presence of multicollinearity should be judged 
with great caution. At the NHTSA workshop on size, safety and mass, 
Paul Green suggested that a matched analysis, in which regressions are 
run on the relationship between mass reduction and risk separately for 
vehicles of similar footprint, could be undertaken to investigate the 
effect of multicollinearity between vehicle mass and size. Kahane has 
combined wheelbase and track width into one variable (footprint) to 
compare with curb weight. NHTSA believes that the 2011 Kahane analysis 
has done all it can to lessen concerns about multicollinearity, but a 
concern still exists. In considering other studies provided by NHTSA 
for evaluation by the UMTRI team:
    [cir] Papers by Wenzel, and Wenzel and Ross, addressing 
associations between fatality risk per vehicle registration-year, 
weight, and size by vehicle model contribute to understanding some of 
the relationships between risk, weight, and size. However, least 
squares linear regression models, without

[[Page 74950]]

modification, are not exposure-based risk models and inference drawn 
from these models tends to be weak since they do not account for 
additional differences in vehicles, drivers, or crash conditions that 
could explain the variance in risk by vehicle model.
    [cir] A 2009 J.P. Research paper focused on the difficulties 
associated with separating out the contributions of weight and size 
variables when analyzing fatality risk properly recognized the problem 
arising from multicollinearity and included a clear explanation of why 
fatality risk is expected to increase with increasing mass ratio. UMTRI 
concluded that the increases in fatality risk associated with a 100-
pound reduction in weight allowing footprint to vary with weight as 
estimated by Kahane and JP Research, are broadly more convincing than 
the 6.7 percent reduction in fatality risk associated with mass 
reduction while holding footprint constant, as reported by DRI.
    [cir] A paper by Nusholtz et al. focused on the question of whether 
vehicle size can reasonably be the dominant vehicle factor for fatality 
risk, and finding that changing the mean mass of the vehicle population 
(leaving variability unchanged) has a stronger influence on fatality 
risk than corresponding (feasible) changes in mean vehicle dimensions, 
concluded unequivocally that reducing vehicle mass while maintaining 
constant vehicle dimensions will increase fatality risk. UMTRI 
concluded that if one accepts the methodology, this conclusion is 
robust against realistic changes that may be made in the force vs. 
deflection characteristics of the impacting vehicles.
    [cir] Two papers by Robertson, one a commentary paper and the other 
a peer-reviewed journal article, were reviewed. The commentary paper 
did not fit separate models according to crash type, and included 
passenger cars, vans, and SUVs in the same model. UMTRI concluded that 
some of the claims in the commentary paper appear to be overstated, and 
intermediate results and more documentation would help the reader 
determine if these claims are valid. The second paper focused largely 
on the effects of electronic stability control (ESC), but generally 
followed on from the first paper except that curb weight is not fit and 
fuel economy is used as a surrogate.
    The UMTRI study provided a number of useful suggestions that Kahane 
considered in updating his 2011 analysis, and that have been 
incorporated into the safety effects estimates for the current 
rulemaking.
d. Report by Dr. Charles Kahane, NHTSA--``Relationships Between 
Fatality Risk, Mass, and Footprint in Model Year 2000-2007 Passenger 
Cars and LTVs,'' 2011
    The relationship between a vehicle's mass, size, and fatality risk 
is complex, and it varies in different types of crashes. NHTSA, along 
with others, has been examining this relationship for over a decade. 
The safety chapter of NHTSA's April 2010 final regulatory impact 
analysis (FRIA) of CAFE standards for MY 2012-2016 passenger cars and 
light trucks included a statistical analysis of relationships between 
fatality risk, mass, and footprint in MY 1991-1999 passenger cars and 
LTVs (light trucks and vans), based on calendar year (CY) 1995-2000 
crash and vehicle-registration data.\190\ The 2010 analysis used the 
same data as the 2003 analysis, but included vehicle mass and footprint 
in the same regression model.
---------------------------------------------------------------------------

    \190\ Kahane, C. J. (2010). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 1991-1999 and Other 
Passenger Cars and LTVs,'' Final Regulatory Impact Analysis: 
Corporate Average Fuel Economy for MY 2012-MY 2016 Passenger Cars 
and Light Trucks. Washington, DC: National Highway Traffic Safety 
Administration, pp. 464-542, available at http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/CAFE_2012-2016_FRIA_04012010.pdf.
---------------------------------------------------------------------------

    The principal findings of NHTSA's 2010 analysis were that mass 
reduction in lighter cars, even while holding footprint constant, would 
significantly increase societal fatality risk, whereas mass reduction 
in the heavier LTVs would significantly reduce net societal fatality 
risk, because it would reduce the fatality risk of occupants in lighter 
vehicles which collide with the heavier LTVs. NHTSA concluded that, as 
a result, any reasonable combination of mass reductions while holding 
footprint constant in MY 2012-2016 vehicles--concentrated, at least to 
some extent, in the heavier LTVs and limited in the lighter cars--would 
likely be approximately safety-neutral; it would not significantly 
increase fatalities and might well decrease them.
    NHTSA's 2010 report partially agreed and partially disagreed with 
analyses published during 2003-2005 by Dynamic Research, Inc. (DRI). 
NHTSA and DRI both found a significant protective effect for footprint, 
and that reducing mass and footprint together (downsizing) on smaller 
vehicles was harmful. DRI's analyses estimated a significant overall 
reduction in fatalities from mass reduction in all light-duty vehicles 
if wheelbase and track width were maintained, whereas NHTSA's report 
showed overall fatality reductions only in the heavier LTVs, and 
benefits only in some types of crashes for other vehicle types. Much of 
NHTSA's 2010 report, as well as recent work by DRI, involved 
sensitivity tests on the databases and models, which generated a range 
of estimates somewhere between the initial DRI and NHTSA results.\191\
---------------------------------------------------------------------------

    \191\ Van Auken, R. M., and Zellner, J. W. (2003). A Further 
Assessment of the Effects of Vehicle Weight and Size Parameters on 
Fatality Risk in Model Year 1985-98 Passenger Cars and 1986-97 Light 
Trucks. Report No. DRI-TR-03-01. Torrance, CA: Dynamic Research, 
Inc.; Van Auken, R. M., and Zellner, J. W. (2005a). An Assessment of 
the Effects of Vehicle Weight and Size on Fatality Risk in 1985 to 
1998 Model Year Passenger Cars and 1985 to 1997 Model Year Light 
Trucks and Vans. Paper No. 2005-01-1354. Warrendale, PA: Society of 
Automotive Engineers; Van Auken, R. M., and Zellner, J. W. (2005b). 
Supplemental Results on the Independent Effects of Curb Weight, 
Wheelbase, and Track on Fatality Risk in 1985-1998 Model Year 
Passenger Cars and 1986-97 Model Year LTVs. Report No. DRI-TR-05-01. 
Torrance, CA: Dynamic Research, Inc.; Van Auken, R.M., and Zellner, 
J. W. (2011). ``Updated Analysis of the Effects of Passenger Vehicle 
Size and Weight on Safety,'' NHTSA Workshop on Vehicle Mass-Size-
Safety, Washington, February 25, 2011, http://www.nhtsa.gov/staticfiles/rulemaking/pdf/MSS/MSSworkshop_VanAuken.pdf
---------------------------------------------------------------------------

    Immediately after issuing the final rule for MYs 2012-2016 CAFE and 
GHG standards in May 2010, NHTSA and EPA began work on the next joint 
rulemaking to develop CAFE and GHG standards for MY 2017 to 2025 and 
beyond. The preamble to the 2012-2016 final rule stated that NHTSA, 
working closely with EPA and the Department of Energy (DOE), would 
perform a new statistical analysis of the relationships between 
fatality rates, mass and footprint, updating the crash and exposure 
databases to the latest available model years, refining the methodology 
in response to peer reviews of the 2010 report and taking into account 
changes in vehicle technologies. The previous databases of MY 1991-1999 
vehicles in CY 1995-2000 crashes has become outdated as new safety 
technologies, vehicle designs and materials were introduced. The new 
databases comprising MY 2000-2007 vehicles in CY 2002-2008 crashes with 
the most up-to-date possible, given the processing lead time for crash 
data and the need for enough crash cases to permit statistically 
meaningful analyses. NHTSA has made the new databases available to the 
public,\192\ enabling other researchers to analyze the same data and 
hopefully minimizing discrepancies in the results due to 
inconsistencies across the data used.\193\
---------------------------------------------------------------------------

    \192\ http://www.nhtsa.gov/fuel-economy.
    \193\ 75 FR 25324 (May 7, 2010); the discussion of planned 
statistical analyses is on pp. 25395-25396.
---------------------------------------------------------------------------

    One way to estimate these effects is via statistical analyses of 
societal fatality

[[Page 74951]]

rates per vehicle miles traveled (VMT), by vehicles' mass and 
footprint, for the current on-road vehicle fleet. The basic analytical 
method used for the 2011 NHTSA report is the same as in NHTSA's 2010 
report: Cross-sectional analyses of the effect of mass and footprint 
reductions on the societal fatality rate per billion vehicle miles of 
travel (VMT), while controlling for driver age and gender, vehicle 
type, vehicle safety features, crash times and locations, and other 
factors. Separate logistic regression models are run for three types of 
vehicles and nine types of crashes. Societal fatality rates include 
occupants of all vehicles in the crash, as well as non-occupants, such 
as pedestrians and cyclists. NHTSA's 2011 Report \194\ analyzes MY 
2000-2007 cars and LTVs in CY 2002-2008 crashes. Fatality rates were 
derived from FARS data, 13 State crash files, and registration and 
mileage data from R.L. Polk.
---------------------------------------------------------------------------

    \194\ Kahane, C. J. (2011). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 2000-2007 Passenger Cars and 
LTVs,'' July 2011. The report is available in the NHTSA docket, 
NHTSA-2010-0152. You can access the docket at http://www.regulations.gov/#!home by typing `NHTSA-2010-0152' where it says 
``enter keyword or ID'' and then clicking on ``Search.''
---------------------------------------------------------------------------

    The most noticeable change in MY 2000-2007 vehicles from MY 1991-
1999 has been the increase in crossover utility vehicles (CUV), which 
are SUVs of unibody construction, often but not always built upon a 
platform shared with passenger cars. CUVs have blurred the distinction 
between cars and trucks. The new analysis treats CUVs and minivans as a 
separate vehicle class, because they differ in some respects from 
pickup-truck-based LTVs and in other respects from passenger cars. In 
the 2010 report, the many different types of LTVs were combined into a 
single analysis and NHTSA believes that this may have made the analyses 
too complex and might have contributed to some of the uncertainty in 
the results.
    The new database has accurate VMT estimates, derived from a file of 
odometer readings by make, model, and model year recently developed by 
R.L. Polk and purchased by NHTSA.\195\ For the 2011 report, the 
relative distribution of crash types has been changed to reflect the 
projected distribution of crashes during the period from 2017 to 2025, 
based on the estimated effectiveness of electronic stability control 
(ESC) in reduction the number of fatalities in rollover crashes and 
crashes with a stationary object. The annual target population of 
fatalities or the annual fatality distribution baseline \196\ was not 
decreased in the period between 2017 and 2025 for the safety statistics 
analysis, but is taken into account later in the Volpe model analysis, 
since all vehicles in the future will be equipped with ESC.\197\
---------------------------------------------------------------------------

    \195\ In the 1991-1999 data base, VMT was estimated only by 
vehicle class, based on NASS CDS data.
    \196\ MY 2004-2007 vehicles with fatal crashes occurred in CY 
2004-2008 are selected as the annual fatality distribution baseline 
in the Kahane analysis.
    \197\ In the Volpe model, NHTSA assumed that the safety trend 
would result in 12.6 percent reduction between 2007 and 2020 due to 
the combination of ESC, new safety standard, and behavior changes 
anticipated.
---------------------------------------------------------------------------

    For the 2011 report, vehicles are now grouped into five classes 
rather than four: passenger cars (including both 2-door and 4-door 
cars) are split in half by median weight; CUVs and minivans; and truck-
based LTVs, which are also split in half by median weight of the model 
year 2000-2007 vehicles. Table II-12 presents the estimated percent 
increase in U.S. societal fatality risk per ten billion VMT for each 
100-pound reduction in vehicle mass, while holding footprint constant, 
for each of the five classes of vehicles.
[GRAPHIC] [TIFF OMITTED] TP01DE11.042

    Only the 1.44 percent risk increase in the lighter cars is 
statistically significant. There are non-significant increases in the 
heavier cars and the lighter truck-based LTVs, and non-significant 
societal benefits for mass

[[Page 74952]]

reduction in CUVs, minivans, and the heavier truck-based LTVs. Based on 
these results, potential combinations of mass reductions that maintain 
footprint and are proportionately somewhat higher for the heavier 
vehicles may be safety-neutral or better as point estimates and, in any 
case, unlikely to significantly increase fatalities. The primarily non-
significant results are not due to a paucity of data, but because the 
societal effect of mass reduction while maintaining footprint, if any, 
is small.
    MY 2000-2007 vehicles of all types are heavier and larger than 
their MY 1991-1999 counterparts. The average mass of passenger cars 
increased by 5 percent from 2000 to 2007 and the average mass of pickup 
trucks increased by 19 percent. Other types of vehicles became heavier, 
on the average, by intermediate amounts. There are several reasons for 
these increases: during this time frame, some of the lighter make-
models were discontinued; many models were redesigned to be heavier and 
larger; and consumers more often selected stretched versions such as 
crew cabs in their new-vehicle purchases.
    It is interesting to compare the new results to NHTSA's 2010 
analysis of MY 1991-1999 vehicles in CY 1995-2000, especially the new 
point estimate to the ``actual regression result scenario'' in the 2010 
report:
[GRAPHIC] [TIFF OMITTED] TP01DE11.043

    The new results are directionally the same as in 2010: fatality 
increase in the lighter cars, safety benefit in the heavier LTVs, but 
the effects may have become weaker at both ends. (The agencies do not 
consider this conclusion to be

[[Page 74953]]

definitive because of the relatively wide confidence bounds of the 
estimates.) The fatality increase in the lighter cars tapered off from 
2.21 percent to 1.44 percent while the societal benefit of mass 
reduction in the heaviest LTVs diminished from 1.90 percent to 0.39 
percent and is no longer statistically significant.
    The agencies believe that the changes may be due to a combination 
of both changes in the characteristics of newer vehicles and revisions 
to the analysis. NHTSA believes, above all, that several light, small 
car models with poor safety performance were discontinued by 2000 or 
during 2000-2007. Also, the tendency of light, small vehicles to be 
driven poorly is not as strong as it used to be--perhaps in part 
because safety improvements in lighter and smaller vehicles have made 
some good drivers more willing to buy them. Both agencies believe that 
at the other end of the weight/size spectrum, blocker beams and other 
voluntary compatibility improvements in LTVs, as well as compatibility-
related self-protection improvements to cars, have made the heavier 
LTVs less aggressive in collisions with lighter vehicles (although the 
effect of mass disparity remains). This report's analysis of CUVs and 
minivans as a separate class of vehicles may have relieved some 
inaccuracies in the 2010 regression results for LTVs. Interestingly, 
the new actual-regression results are quite close to the previous 
report's ``lower-estimate scenario,'' which was an attempt to adjust 
for supposed inaccuracies in some regressions and for a seemingly 
excessive trend toward higher crash rates in smaller and lighter cars.
    The principal difference between the heavier vehicles, especially 
truck-based LTVs, and the lighter vehicles, especially passenger cars, 
is that mass reduction has a different effect in collisions with 
another car or LTV. When two vehicles of unequal mass collide, the 
delta V is higher in the lighter vehicle, in the same proportion as the 
mass ratio. As a result, the fatality risk is also higher. Removing 
some mass from the heavy vehicle reduces delta V in the lighter 
vehicle, where fatality risk is high, resulting in a large benefit, 
offset by a small penalty because delta V increases in the heavy 
vehicle, where fatality risk is low--adding up to a net societal 
benefit. Removing some mass from the lighter vehicle results in a large 
penalty offset by a small benefit--adding up to net harm. These 
considerations drive the overall result: fatality increase in the 
lighter cars, reduction in the heavier LTVs, and little effect in the 
intermediate groups. However, in some types of crashes, especially 
first event rollovers and impacts with fixed objects, mass reduction is 
usually not harmful and often beneficial, because the lighter vehicles 
respond more quickly to braking and steering and are often more stable 
because their center of gravity is lower. Offsetting that benefit is 
the continuing historical tendency of lighter and smaller vehicles to 
be driven less well--although it continues to be unknown why that is 
so, and to what extent, if any, the lightness or smallness of the 
vehicle contributes to people driving it less safely.
    The estimates of the model are formulated for each 100-pound 
reduction in mass; in other words, if risk increases by 1 percent for 
100 pounds reduction in mass, it would increase by 2 percent for a 200-
pound reduction, and 3 percent for a 300-pound reduction (more exactly, 
2.01 percent and 3.03 percent, because the effects work like compound 
interest). Confidence bounds around the point estimates will grow wider 
by the same proportions.
    The regression results are best suited to predict the effect of a 
small change in mass, leaving all other factors, including footprint, 
the same. With each additional change from the current environment, the 
model may become somewhat less accurate and it is difficult to assess 
the sensitivity to additional mass reduction greater than 100 pounds. 
The agencies recognize that the light-duty vehicle fleet in the 2017-
2025 timeframe will be different than the 2000-2007 fleet analyzed for 
this study. Nevertheless, one consideration provides some basis for 
confidence. This is NHTSA's fourth evaluation of the effects of mass 
reduction and/or downsizing, comprising databases ranging from MY 1985 
to 2007. The results of the four studies are not identical, but they 
have been consistent up to a point. During this time period, many makes 
and models have increased substantially in mass, sometimes as much as 
30-40 percent.\198\ If the statistical analysis has, over the past 
years, been able to accommodate mass increases of this magnitude, 
perhaps it will also succeed in modeling the effects of mass reductions 
on the order of 10-20 percent, if they occur in the future.
---------------------------------------------------------------------------

    \198\ For example, one of the most popular models of small 4-
door sedans increased in curb weight from 1,939 pounds in MY 1985 to 
2,766 pounds in MY 2007, a 43 percent increase. A high-sales mid-
size sedan grew from 2,385 to 3,354 pounds (41%); a best-selling 
pickup truck from 3,390 to 4,742 pounds (40%) in the basic model 
with 2-door cab and rear-wheel drive; and a popular minivan from 
2,940 to 3,862 pounds (31%).
---------------------------------------------------------------------------

e. Report by Tom Wenzel, LBNL, ``An Assessment of NHTSA's Report 
`Relationships Between Fatality Risk, Mass, and Footprint in Model Year 
2000-2007 Passenger Cars and LTVs'' ', 2011
    DOE contracted with Tom Wenzel of Lawrence Berkeley National 
Laboratory to conduct an assessment of NHTSA's updated 2011 study of 
the effect of mass and footprint reductions on U.S. fatality risk per 
vehicle miles traveled, and to provide an analysis of the effect of 
mass and footprint reduction on casualty risk per police-reported 
crash, using independent data from thirteen states. The assessment has 
been completed and reviewed by NHTSA and EPA staff, and a draft final 
version is included in the docket of today's rulemaking; the separate 
analysis of crash data from thirteen states will be completed and 
included in the docket shortly. Both reports will be peer reviewed by 
outside experts.
    The LBNL report replicates Kahane's analysis for NHTSA, using the 
same data and methods, and in many cases using the same SAS programs. 
The Wenzel report finds that although mass reduction in lighter (less 
than 3,106 lbs) cars leads to a statistically significant 1.44% 
increase in fatality risk per vehicle miles travelled (VMT), the 
increase is small. He tests this result for sensitivity to changes in 
specifications of the regression models and what data are used. In 
addition Wenzel shows that there is a wide range in fatality rates by 
vehicle model for models that have the same mass, even after accounting 
for differences in drivers' age and gender, safety features installed, 
and crash times and locations. This section summarizes the results of 
the Wenzel assessment of the most recent NHTSA analysis.
    The LBNL report highlights the effect of the other driver, vehicle, 
and crash control variables, in addition to the effect of mass and 
footprint reduction, on risk. Some of the other variables NHTSA 
included in its regression models have much larger effects on fatality 
risk than mass or footprint reduction. For example, the models indicate 
that a 100-lb increase in the mass of a lighter car results in a 1.44% 
reduction in fatality risk; this is the largest estimated effect of 
changes in vehicle mass, and the only one that is statistically 
significant. For comparison this reduction in fatality risk could also 
be achieved by a 13% increase in 4-door sedans equipped with ESC.
    The 1.44% increase in risk from reducing mass in the lighter cars 
was

[[Page 74954]]

tested for sensitivity changes in the specification of, or the data 
used in, the regression models. For example, using the current 
distribution of crashes, rather than adjusting the distribution to that 
expected after full adoption of ESC, reduces the effect to 1.18%; 
excluding the calendar year variables from the model, which may be 
weakening the modeled benefits of vehicle safety technologies, reduces 
the effect to 1.39%; and including vehicle make in the model increases 
the effect to 1.81%. The results also are sensitive to the selection of 
data to include in the analysis: Excluding bad drivers increases the 
effect to 2.03%, while excluding crashes involving alcohol or drugs 
increases the effect to 1.66%, and including sports, police, and all-
wheel drive cars increases the effect to 1.64%. Finally, changing the 
definition of risk also affects the result for lighter cars: Using the 
number of fatalities per induced exposure crash reduces the effect to -
0.24% (that is, a 0.24% reduction in risk), while using the number of 
fatal crashes (rather than total fatalities) per VMT increases the 
effect to 1.84%. These sensitivity tests, except one, changed the 
estimated coefficient by less than 1 percentage point, which is within 
its statistical confidence bounds of 0.29 to 2.59 percent and may be 
considered compatible with the baseline result. Using two or more 
variables that are strongly correlated in the same regression model 
(referred to as multicollinearity) can lead to inaccurate results. 
However, the correlation between vehicle mass and footprint may not be 
strong enough to cause serious concern. Experts suggest that a 
correlation of greater than 0.60 (or a variance inflation factor of 
2.5) raises concern about multicollinearity.\199\ The correlation 
between vehicle mass and footprint ranges from over 0.80 for four-door 
sedans, pickups, and SUVs, to about 0.65 for two-door cars and CUVs, to 
0.26 for minivans; when pickups and SUVs are considered together, the 
correlation between mass and footprint is 0.65. Wenzel notes that the 
2011 NHTSA report recognizes that the ``near'' multicollinearity 
between mass and footprint may not be strong enough to invalidate the 
results from a regression model that includes both variables. In 
addition, NHTSA included several analyses to address possible effects 
of the near-multicollinearity between mass and footprint.
---------------------------------------------------------------------------

    \199\ Light-Duty Vehicle Greenhouse Gas Emission Standards and 
Corporate Average Fuel Economy Standards; Final Rule, April 1, 2010, 
Section II.G.3., page 139.
---------------------------------------------------------------------------

    First, NHTSA ran a sensitivity model specification, where footprint 
is not held constant, but rather allowed to vary as mass varies (i.e. 
NHTSA ran a regression model which includes mass but not footprint). If 
the multicollinearity was so great that including both variables in the 
same model gave misleading results, removing footprint from the model 
could give mass coefficients five or more percentage points different 
than keeping it in the model. NHTSA's sensitivity test indicates that 
when footprint is allowed to vary with mass, the effect of mass 
reduction on risk increases from 1.44% to 2.64% for lighter cars, and 
from a non-significant 0.47% to a statistically-significant 1.94% for 
heavier cars (changes of less than two percentage points); however, the 
effect of mass reduction on light trucks is unchanged, and is still not 
statistically significant for CUVs/minivans.
    Second, NHTSA conducted a stratification analysis of the effect of 
mass reduction on risk by dividing vehicles into deciles based on their 
footprint, and running a separate regression model for each vehicle and 
crash type, for each footprint decile (3 vehicle types times 9 crash 
types times 10 deciles equals 270 regressions). This analysis estimates 
the effect of mass reduction on risk separately for vehicles with 
similar footprint. The analysis indicates that mass reduction does not 
consistently increase risk across all footprint deciles for any 
combination of vehicle type and crash type. Mass reduction increases 
risk in a majority of footprint deciles for 13 of the 27 crash and 
vehicle combinations, but few of these increases are statistically 
significant. On the other hand, mass reduction decreases risk in a 
majority of footprint deciles for 9 of the 27 crash and vehicle 
combinations; in some cases these risk reductions are large and 
statistically significant.\200\ If reducing vehicle mass while 
maintaining footprint inherently leads to an increase in risk, the 
coefficients on mass reduction should be more consistently positive, 
and with a larger R2, across the 27 vehicle/crash 
combinations, than shown in the analysis. These findings are consistent 
with the conclusion of the basic regression analyses, namely, that the 
effect of mass reduction while holding footprint constant, if any, is 
small.
---------------------------------------------------------------------------

    \200\ And in 5 of the 27 crash and vehicle combinations, mass 
reduction increased risk in 5 deciles and decreased risk in 5 
deciles.
---------------------------------------------------------------------------

    One limitation of using logistic regression to estimate the effect 
of mass reduction on risk is that a standard statistic to measure the 
extent to which the variables in the model explain the range in risk, 
equivalent to the R2> statistic in a linear regression 
model, does not exist. (SAS does generate a pseudo-R2 value 
for logistic regression models; in almost all of the NHTSA regression 
models this value is less than 0.10). For this reason LBNL conducted an 
analysis of risk versus mass by vehicle model. LBNL used the results of 
the NHTSA logistic regression model to predict the number of fatalities 
expected after accounting for all vehicle, driver, and crash variables 
included in the NHTSA regression model except for vehicle weight and 
footprint. LBNL then plotted expected fatality risk per VMT by vehicle 
model against the mass of each model, and analyzed the change in risk 
as mass increases, as well as how much of the change in risk was 
explained by all of the variables included in the model.
    The analysis indicates that, after accounting for all the 
variables, risk does decrease as mass increases; however, risk and mass 
are not strongly correlated, with the R2 ranging from 0.33 
for CUVs to less than 0.15 for all other vehicle types (as shown in 
Figure x). This means that, on average, risk decreases as mass 
increases, but the variation in risk among individual vehicle models is 
stronger than the trend in risk from light to heavy vehicles. For 
fullsize (i.e. 3/4- and 1-ton) pickups, risk increases as mass 
increases, with an R2 of 0.43, consistent with NHTSA's basic 
regression results for the heavier LTVs (societal risk increases as 
mass increases). LBNL also examined the relationship between residual 
risk, that is the remaining unexplained risk after accounting for all 
vehicle, driver and crash variables, and mass, and found similarly poor 
correlations. This implies that the remaining factors not included in 
the regression model that account for the observed range in risk by 
vehicle model also are not correlated with mass. (LBNL found similar 
results when the analysis compared risk to vehicle footprint.)
    Figure II-2 indicates that some vehicles on the road today have the 
same, or lower, fatality rates than models that weigh substantially 
more, and are substantially larger in terms of footprint. After 
accounting for differences in driver age and gender, safety features 
installed, and crash times and locations, there are numerous examples 
of different models with similar weight and footprint yet widely 
varying fatality rates. The variation of fatality rates among 
individual models may reflect differences in vehicle

[[Page 74955]]

design, differences in the drivers who choose such vehicles (beyond 
what can be explained by demographic variables such as age and gender), 
and statistical variation of fatality rates based on limited data for 
individual models. Differences in vehicle design can, and already do, 
mitigate some safety penalties from reduced mass; this is consistent 
with NHTSA's opinion that some of the changes in its regression results 
between the 2003 study and the 2011 study are due to the redesign or 
removal of certain smaller and lighter models of poor design.
[GRAPHIC] [TIFF OMITTED] TP01DE11.044

f. Based on this information, what do the agencies consider to be the 
current state of statistical research on vehicle mass and safety?
    The agencies believe that statistical analysis of historical crash 
data continues to be an informative and important tool in assessing the 
potential safety impacts of the proposed standards. The effect of mass 
reduction while maintaining footprint is a complicated topic and there 
are open questions whether future designs will reduce the historical 
correlation between weight and size. It is important to note that while 
the updated database represents more current vehicles with technologies 
more representative of vehicles on the road today, they still do not 
fully represent what vehicles will be on the road in the 2017-2025 
timeframe. The vehicles manufactured in the 2000-2007 timeframe were 
not subject to footprint-based fuel economy standards. The agencies 
expect that the attribute-based standards will likely facilitate the 
design of vehicles such that manufacturers may reduce mass while 
maintaining footprint. Therefore, it is possible that the analysis for 
2000-2007 vehicles may not be fully representative of the vehicles that 
will be on the road in 2017 and beyond.
    While we recognize that statistical analysis of historical crash 
data may not be the only way to think about the future relationship 
between vehicle mass and safety, we also recognize that other 
assessment methods are also subject to uncertainties, which makes 
statistical analysis of historical data an important starting point if 
employed mindfully and recognized for how it can be useful and what its 
limitations may be.
    NHTSA undertook the independent review of statistical studies and 
held the mass-safety workshop in February 2011 in order to help the 
agencies sort through the ongoing debates over what statistical 
analysis of historical data is actually telling us. Previously, the 
agencies have assumed that differences in results were due in part to 
inconsistent databases; by creating the updated common database and 
making it publicly available, we are hopeful that that aspect of the 
problem has been resolved, and moreover, the UMTRI review suggested 
that differences in data were probably less significant than the 
agencies may have thought. Statistical analyses of historical crash 
data should be examined for potential multicollinearity issues. The 
agencies will continue to monitor issues with multicollinearity in our 
analyses, and hope that outside researchers will do the same. And 
finally, based on the findings of the independent review, the agencies 
continue to be confident that Kahane's analysis is one of the best for 
the purpose of analyzing potential safety effects of future CAFE and 
GHG standards. UMTRI concluded that Kahane's approach is valid, and 
Kahane has continued and refined that approach for the current 
analysis. The NHTSA 2011 statistical fatality report finds 
directionally similar but less statistically significant relationships 
between vehicle mass, size, and footprint, as discussed above. Based on 
these findings, the agencies believe that

[[Page 74956]]

in the future, fatalities due to mass reduction will be best reduced if 
mass reduction is concentrated in the heaviest vehicles. NHTSA 
considers part of the reason that more recent historical data shows a 
dampened effect in the relationship between mass reduction and safety 
is that all vehicles, including traditionally lighter ones, grew 
heavier during that timeframe (2000s). As lighter vehicles might become 
more prevalent in the fleet again over the next decade, it is possible 
that the trend could strengthen again. On the other hand, extensive use 
of new lightweight materials and optimized vehicle design may weaken 
the relationship. Future updated analyses will be necessary to 
determine how the effect of mass reduction on risk changes over time.
    Both agencies agree that there are several identifiable safety 
trends already in place or expected to occur in the foreseeable future 
that are not accounted for in the study, since they were not in effect 
at the time that the vehicles in question were manufactured. For 
example, there are two important new safety standards that have already 
been issued and will be phasing in after MY 2008. FMVSS No. 126 (49 CFR 
Sec.  571.126) requires electronic stability control in all new 
vehicles by MY 2012, and the upgrade to FMVSS No. 214 (Side Impact 
Protection, 49 CFR Sec.  571.214) will likely result in all new 
vehicles being equipped with head-curtain air bags by MY 2014. 
Additionally, we anticipate continued improvements in driver (and 
passenger) behavior, such as higher safety belt use rates. All of these 
may tend to reduce the absolute number of fatalities. On the other 
hand, as crash avoidance technology improves, future statistical 
analysis of historical data may be complicated by a lower number of 
crashes. In summary, the agencies have relied on the coefficients in 
the Kahane 2011 study for estimating the potential safety effects of 
the proposed CAFE and GHG standards for MYs 2017-2025, based on our 
assumptions regarding the amount of mass reduction that could be used 
to meet the standards in a cost-effective way without adversely 
affecting safety. Section E below discusses the methodology used by the 
agencies in more detail; while the results of the safety effects 
analysis are less significant than the results in the MY 2012-2016 
final rule, the agencies still believe that any statistically 
significant results warrant careful consideration of the assumptions 
about appropriate levels of mass reduction on which to base future CAFE 
and GHG standards, and have acted accordingly in developing the 
proposed standards.
4. How do the agencies think technological solutions might affect the 
safety estimates indicated by the statistical analysis?
    As mass reduction becomes a more important technology option for 
manufacturers in meeting future CAFE and GHG standards, manufacturers 
will invest more and more resources in developing increasingly 
lightweight vehicle designs that meet their needs for manufacturability 
and the public's need for vehicles that are also safe, useful, 
affordable, and enjoyable to drive. There are many different ways to 
reduce mass, as discussed in Chapter 3 of this TSD and in Sections II, 
III, and IV of the preamble, and a considerable amount of information 
is available today on lightweight vehicle designs currently in 
production and that may be able to be put into production in the 
rulemaking timeframe. Discussion of lightweight material designs from 
NHTSA's workshop is presented below.
    Besides ``lightweighting'' technologies themselves, though, there 
are a number of considerations when attempting to evaluate how future 
technological developments might affect the safety estimates indicated 
by the statistical analysis. As discussed in the first part of this 
chapter, for example, careful changes in design and/or materials used 
might mitigate some of the potential decrease in safety from mass 
reduction--through improved distribution of crash pulse energy, etc.--
but these techniques can sometimes cause other problems, such as 
increased crash forces on vehicle occupants that have to be mitigated, 
or greater aggressivity against other vehicles in crashes. 
Manufacturers may develop new and better restraints--air bags, seat 
belts, etc.--to protect occupants in lighter vehicles in crashes, but 
NHTSA's current safety standards for restraint systems are designed 
based on the current fleet, not the yet-unknown future fleet. The 
agency will need to monitor trends in the crash data to see whether 
changes to the safety standards (or new safety standards) become 
necessary. Manufacturers are also increasingly investigating a variety 
of crash avoidance technologies--ABS, electronic stability control 
(ESC), lane departure warnings, vehicle-to-vehicle (V2V) 
communications--that, as they become more prevalent in the fleet, are 
expected to reduce the number of overall crashes, and fatal, crashes. 
Until these technologies are present in the fleet in greater numbers, 
however, it will be difficult to assess whether they can mitigate the 
observed relationship between vehicle mass and safety in the historical 
data.
    Along with the California Air Resources Board (CARB), the agencies 
have initiated several projects to estimate the maximum potential for 
advanced materials and improved designs to reduce mass in the MY 2017-
2021 timeframe, while continuing to meeting safety regulations and 
maintaining functionality of vehicles. Another NHTSA-sponsored study 
will estimate the effects of these design changes on overall fleet 
safety.
    A. NHTSA has awarded a contract to Electricore, with EDAG and 
George Washington University (GWU) as subcontractors, to study the 
maximum feasible amount of mass reduction for a mid-size car--
specifically, a Honda Accord. The study tore down a MY 2011 Honda 
Accord, studied each component and sub-system, and then redesigned each 
component and sub-system trying to maximize the amount of mass 
reduction with technologies that are considered feasible for 200,000 
units per year production volume during the time frame of this 
rulemaking. Electricore and its sub-contractors are consulting industry 
leaders and experts for each component and sub-system when deciding 
which technologies are feasible. Electricore and its sub-contractors 
are also building detailed CAD/CAE/powertrain models to validate 
vehicle safety, stiffness, NVH, durability, drivability and powertrain 
performance. For OEM-supplied parts, a detailed cost model is being 
built based on a Technical Cost Modeling (TCM) approach developed by 
the Massachusetts Institute of Technology (MIT) Materials Systems 
Laboratory's research\201\ to estimate the costs to OEMs for 
manufacturing parts. The cost will be broken down into each of the 
operations involved in the manufacturing; for example, for a sheet 
metal part, production costs will be estimated from the blanking of the 
steel coil to the final operation to fabricate the component. Total 
costs are then categorized into fixed cost, such as tooling, equipment, 
and facilities; and variable costs such as labor, material, energy, and 
maintenance. These costs will be assessed through an interactive 
process between the product designer, manufacturing engineers, and cost

[[Page 74957]]

analysts. For OEM-purchased parts, the cost will be estimated by 
consultation with experienced cost analysts and Tier 1 system 
suppliers. This study will help to inform the agencies about the 
feasible amount of mass reduction and the cost associated with it. 
NHTSA intends to have this study completed and peer reviewed before 
July 2012, in time for it to play an integral role in informing the 
final rule.
---------------------------------------------------------------------------

    \201\ Frank Field, Randolph Kirchain and Richard Roth, Process 
cost modeling: Strategic engineering and economic evaluation of 
materials technologies, JOM Journal of the Minerals, Metals and 
Materials Society, Volume 59, Number 10, 21-32. Available at http://msl.mit.edu/pubs/docs/Field_KirchainCM_StratEvalMatls.pdf (last 
accessed Aug. 22, 2011).
---------------------------------------------------------------------------

    B. EPA has awarded a similar contract to FEV, with EDAG and Monroe 
& Associates, Inc. as subcontractors, to study the maximum feasible 
amount of mass reduction for a mid-size CUV (cross over vehicle) 
specifically, a Toyota Venza. The study tears down a MY 2010 vehicle, 
studies each component and sub-system, and then redesigns each 
component and sub-system trying to maximize the amount of mass 
reduction with technologies that are considered feasible for high 
volume production for a 2017 MY vehicle. FEV in coordination with EDAG 
is building detailed CAD/CAE/powertrain models to validate vehicle 
safety, stiffness, NVH, durability, drivability and powertrain 
performance to assess the safety of this new design. This study builds 
upon the low development (20% mass reduction) design in the 2010 Lotus 
Engineering study ``An Assessment of Mass Reduction Opportunities for a 
2017-2020 Model Year Vehicle Program''. This study builds upon the low 
development (20% mass reduction) design in the 2010 Lotus Engineering 
study ``An Assessment of Mass Reduction Opportunities for a 2017-2020 
Model Year Vehicle Program''. This study will undergo a peer review. 
EPA intends to have this study completed and peer reviewed before July 
2012, in time for it to play an integral role in informing the final 
rule.
    C. California Air Resources Board (CARB) has awarded a contract to 
Lotus Engineering, to study the maximum feasible amount of mass 
reduction for a mid-size CUV (cross over vehicle) specifically, a 
Toyota Venza. The study will concentrate on the Body-in-White and 
closures in the high development design (40% mass reduction) in the 
Lotus Engineering study cited above. The study will provide an updated 
design with crash simulation, detailed costing and manufacturing 
feasibility of these two systems for a MY2020 high volume production 
vehicle. This study will undergo a peer review. EPA intends to have 
this study completed and peer reviewed before July 2012, in time for it 
to play an integral role in informing the final rule.
    D. NHTSA has contracted with George Washington University (GWU) to 
build a fleet simulation model to study the impact and relationship of 
light-weight vehicle design and injuries and fatalities. This study 
will also include an evaluation of potential countermeasures to reduce 
any safety concerns associated with lightweight vehicles. NHTSA will 
include three light-weighted vehicle designs in this study: the one 
from Electricore/EDAG/GWU mentioned above, one from Lotus Engineering 
funded by California Air Resource Board for the second phase of the 
study, evaluating mass reduction levels around 35 percent of total 
vehicle mass, and two funded by EPA and the International Council on 
Clean Transportation (ICCT). This study will help to inform the 
agencies about the possible safety implications for light-weight 
vehicle designs and the appropriate counter-measures,\202\ if 
applicable, for these designs, as well as the feasible amounts of mass 
reduction. All of these analyses are expected to be finished and peer-
reviewed before July 2012, in time to inform the final rule.
---------------------------------------------------------------------------

    \202\ Countermeasures could potentially involve improved front 
end structure, knee bags, seat ramps, buckle pretensioners, and 
others.
---------------------------------------------------------------------------

a. NHTSA workshop on vehicle mass, size and safety
    As stated above, in section C.2, on February 25, 2011, NHTSA hosted 
a workshop on mass reduction, vehicle size, and fleet safety at the 
Headquarters of the US Department of Transportation in Washington, DC. 
The purpose of the workshop was to provide the agencies with a broad 
understanding of current research in the field and provide stakeholders 
and the public with an opportunity to weigh in on this issue. The 
agencies also created a public docket to receive comments from 
interested parties that were unable to attend. The presentations were 
divided into two sessions that addressed the two expansive sets of 
issues. The first session explored statistical evidence of the roles of 
mass and size on safety, and is summarized in section C.2. The second 
session explored the engineering realities of structural 
crashworthiness, occupant injury and advanced vehicle design, and is 
summarized here. The speakers in the second session included Stephen 
Summers of NHTSA, Gregg Peterson of Lotus Engineering, Koichi Kamiji of 
Honda, John German of the International Council on Clean Transportation 
(ICCT), Scott Schmidt of the Alliance of Automobile Manufacturers, Guy 
Nusholtz of Chrysler, and Frank Field of the Massachusetts Institute of 
Technology.
    The second session explored what degree of weight reduction and 
occupant protection are feasible from technical, economic, and 
manufacturing perspectives. Field emphasized that technical feasibility 
alone does not constitute feasibility in the context of vehicle mass 
reduction. Sufficient material production capacity and viable 
manufacturing processes are essential to economic feasibility. Both 
Kamiji and German noted that both good materials and good designs will 
be necessary to reduce fatalities. For example, German cited the 
examples of hexagonally structured aluminum columns, such as used in 
the Honda Insight, that can improve crash absorption at lower mass, and 
of high-strength steel components that can both reduce weight and 
improve safety. Kamiji made the point that widespread mass reduction 
will reduce the kinetic energy of all crashes which should produce some 
beneficial effect.
    Summers described NHTSA's plans for a model to estimate fleetwide 
safety effects based on an array of vehicle-to-vehicle computational 
crash simulations of current and anticipated vehicle designs. In 
particular, three computational models of lightweight vehicles are 
under development. They are based on current vehicles that have been 
modified to substantially reduce mass. The most ambitious was the 
``high development'' derivative of a Toyota Venza developed by Lotus 
Engineering and discussed by Mr. Peterson. Its structure currently 
contains about 75% aluminum, 12% magnesium, 8% steel, and 5% advanced 
composites. Peterson expressed confidence that the design had the 
potential to meet federal safety standards. Nusholtz emphasized that 
computational crash simulations involving more advanced materials were 
less reliable than those involving traditional metals such as aluminum 
and steel.
    Nusholtz presented a revised data-based fleet safety model in which 
important vehicle parameters were modeled based on trends from current 
NCAP crash tests. For example, crash pulses and potential intrusion for 
a particular size vehicle were based on existing distributions. Average 
occupant deceleration was used to estimate injury risk. Through a range 
of simulations of modified vehicle fleets, he was able to estimate the 
net effects of various design strategies for lighter weight vehicles, 
such as various scaling approaches for vehicle stiffness or intrusion. 
The approaches were selected based on engineering requirements for 
modified

[[Page 74958]]

vehicles. Transition from the current fleet was considered. He 
concluded that protocols resulting in safer transitions (e.g., removing 
more mass from heavier vehicles with appropriate stiffness scaling 
according to a \3/2\ power law) were not generally consistent with 
those that provide the greatest reduction in GHG production.
    German discussed several important points on the future of mass 
reduction. Similar to Kahane's discussion of the difficulties of 
isolating the impact of weight reduction, German stated that other 
important variables, such as vehicle design and compatibility factors, 
must be held constant in order for size or weight impacts to be 
quantified in statistical analyses. He presented results that, compared 
to driver, driving influences, and vehicle design influences, the 
safety impacts of size and weight are small and difficult to quantify. 
He noted that several scenarios, such as rollovers, greatly favored the 
occupants of smaller and lighter cars once a crash occurred. He pointed 
out that if size and design are maintained, lower weight should 
translate into a lower total crash force. He thought that advanced 
material designs have the potential to ``decouple'' the historical 
correlation between vehicle size and weight, and felt that effective 
design and driver attributes may start to dominate size and weight 
issues in future vehicle models.
    Other presenters noted industry's perspective of the effect of 
incentivizing weight reduction. Field highlighted the complexity of 
institutional changes that may be necessitated by weight reduction, 
including redesign of material and component supply chains and 
manufacturing infrastructure. Schmidt described an industry perspective 
on the complicated decisions that must be made in the face of 
regulatory change, such as evaluating goals, gains, and timing.
    Field and Schmidt noted that the introduction of technical 
innovations is generally an innate development process involving both 
tactical and strategic considerations that balance desired vehicle 
attributes with economic and technical risk. In the absence of 
challenging regulatory requirements, a substantial technology change is 
often implemented in stages, starting with lower volume pilot 
production before a commitment is made to the infrastructure and supply 
chain modifications necessary for inclusion on a high-volume production 
model. Joining, damage characterization, durability, repair, and 
significant uncertainty in final component costs are also concerns. 
Thus, for example, the widespread implementation of high-volume 
composite or magnesium structures might be problematic in the short or 
medium term when compared to relatively transparent aluminum or high 
strength steel implementations. Regulatory changes will affect how 
these tradeoffs are made and these risks are managed.
    Koichi Kamiji presented data showing in increased use of high 
strength steel in their Honda product line to reduced vehicle mass and 
increase vehicle safety. He stated that mass reduction is clearly a 
benefit in 42% of all fatal crashes because absolute energy is reduced. 
He followed up with slides showing the application of certain optimized 
it designs can improve safety even when controlling for weight and 
size.
    A philosophical theme developed that explored the ethics of 
consciously allowing the total societal harm associated with mass 
reduction to approach the anticipated benefits of enhanced safety 
technologies. Although some participants agreed that there may 
eventually be specific fatalities that would not have occurred without 
downsizing, many also agreed that safety strategies will have to be 
adapted to the reality created by consumer choices, and that ``We will 
be ok if we let data on what works--not wishful thinking--guide our 
strategies.''
5. How have the agencies estimated safety effects for the proposed 
standards?
a. What was the agencies' methodology for estimating safety effects for 
the proposed standards?
    As explained above, the agencies consider the 2011 statistical 
analysis of historical crash data by NHTSA to represent the best 
estimates of the potential relationship between mass reduction and 
fatality increases in the future fleet. This section discusses how the 
agencies used NHTSA's 2011 analysis to calculate specific estimates of 
safety effects of the proposed standards, based on the analysis of how 
much mass reduction manufacturers might use to meet the proposed 
standards.
    Neither the proposed CAFE/GHG standards nor the agencies' analysis 
mandates mass reduction, or mandates that mass reduction occur in any 
specific manner. However, mass reduction is one of the technology 
applications available to the manufacturers and a degree of mass 
reduction is used by both agencies' models to determine the 
capabilities of manufacturers and to predict both cost and fuel 
consumption/emissions impacts of improved CAFE/GHG standards. We note 
that the amount of mass reduction selected for this rulemaking is based 
on our assumptions about how much is technologically feasible without 
compromising safety. While we are confident that manufacturers will 
build safe vehicles, we cannot predict with certainty that they will 
choose to reduce mass in exactly the ways that the agencies have 
analyzed in response to the standards. In the event that manufacturers 
ultimately choose to reduce mass and/or footprint in ways not analyzed 
or anticipated by the agencies, the safety effects of the rulemaking 
may likely differ from the agencies' estimates.
    NHTSA utilized the 2011 Kahane study relationships between weight 
and safety, expressed as percent changes in fatalities per 100-pound 
weight reduction while holding footprint constant. However, as 
mentioned previously, there are several identifiable safety trends 
already occurring, or expected to occur in the foreseeable future, that 
are not accounted for in the study. For example, the two important new 
safety standards that were discussed above for electronic stability 
control and head curtain airbags, have already been issued and began 
phasing in after MY 2008. The recent shifts in market shares from 
pickups and SUVs to cars and CUVs may continue, or accelerate, if 
gasoline prices remain high, or rise further. The growth in vehicle 
miles travelled may continue to stagnate if the economy does not 
improve, or gasoline prices remain high. And improvements in driver 
(and passenger) behavior, such as higher safety belt use rates, may 
continue. All of these will tend to reduce the absolute number of 
fatalities in the future. The agency estimated the overall change in 
fatalities by calendar year after adjusting for ESC, Side Impact 
Protection, and other Federal safety standards and behavioral changes 
projected through this time period. The smaller percent changes in risk 
from mass reduction (from the 2011 NHTSA analysis), coupled with the 
reduced number of baseline fatalities, results in smaller absolute 
increases in fatalities than those predicted in the 2010 rulemaking.
    NHTSA examined the impacts of identifiable safety trends over the 
lifetime of the vehicles produced in each model year. An estimate of 
these impacts was contained in a previous

[[Page 74959]]

agency report.\203\ The impacts were estimated on a year-by-year basis, 
but could be examined in a combined fashion. Using this method, we 
estimate a 12.6 percent reduction in fatality levels between 2007 and 
2020 for the combination of safety standards and behavioral changes 
anticipated (ESC, head-curtain air bags, and increased belt use). Since 
the same safety standards are taking effect in the same years, the 
estimates derived from applying NHTSA fatality percentages to a 
baseline of 2007 fatalities were thus multiplied by 0.874 to account 
for changes that NHTSA believes will take place in passenger car and 
light truck safety between the 2007 baseline on-road fleet used for 
this particular safety analysis and year 2025.
---------------------------------------------------------------------------

    \203\ Countermeasures could potentially involve improved front 
end structure, knee bags, seat ramps, buckle pretensioners, and 
others.
    Blincoe, L. and Shankar, U., ``The Impact of Safety Standards 
and Behavioral Trends on Motor Vehicle Fatality Rates,'' DOT HS 810 
777, January 2007. See Table 4 comparing 2020 to 2007 (37,906/43,363 
= 12.6% reduction (1-.126 = .874). Since 2008 was a recession year, 
it does not seem appropriate to use that as a baseline. We believe 
this same ratio should hold for this analysis which should compare 
2025 to 2008. Thus, we are inclined to continue to use the same 
ratio.
---------------------------------------------------------------------------

    To estimate the amount of mass reduction to apply in the rulemaking 
analysis, the agencies considered fleet safety effects for mass 
reduction. As previously discussed and shown in Table II-15, the Kahane 
2011 study shows that applying mass reduction to CUVs and light duty 
trucks will generally decrease societal fatalities, while applying mass 
reduction to passenger cars will increase fatalities. The CAFE model 
uses coefficients from the Kahane study along with the mass reduction 
level applied to each vehicle model to project societal fatality 
effects in each model year. NHTSA used the CAFE model and conducted 
iterative modeling runs varying the maximum amount of mass reduction 
applied to each subclass in order to identify a combination that 
achieved a high level of overall fleet mass reduction while not 
adversely affecting overall fleet safety. These maximum levels of mass 
reduction for each subclass were then used in the CAFE model for the 
rulemaking analysis. The agencies believe that mass reduction of up to 
20 percent is feasible on light trucks, CUVs and minivans,\204\ but 
that less mass reduction should be implemented on other vehicle types 
to avoid increases in societal fatalities. For this proposal, NHTSA 
used the mass reduction levels shown in Table II-15.
---------------------------------------------------------------------------

    \204\ When applying mass reduction, NHSTA capped the maximum 
amount of mass reduction to 20 percent for any individual vehicle 
class. The 20 percent cap is the maximum amount of mass reduction 
the agencies believe to be feasible in MYs 2017-2025 time frame.
[GRAPHIC] [TIFF OMITTED] TP01DE11.045

    For the CAFE model, these percentages apply to a vehicle's total 
weight, including the powertrain. Table II-16 shows the amount of mass 
reduction in pounds for these percentage mass reduction levels for a 
typical vehicle weight in each subclass.

[[Page 74960]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.046

    After applying the mass reduction levels in the CAFE model, Table 
II-17 shows the results of NHTSA's safety analysis separately for each 
model year.\205\ These are estimated increases or decreases in 
fatalities over the lifetime of the model year fleet. A positive number 
means that fatalities are projected to increase, a negative number 
(indicated by parentheses) means that fatalities are projected to 
decrease. The results are significantly affected by the assumptions put 
into the Volpe model to take more weight out of the heavy LTVs, CUVs, 
and minivans than out of other vehicles. As the negative coefficients 
only appear for LTVs greater than 4,594 lbs., CUVs, and minivans, a 
statistically improvement in safety can only occur if more weight is 
taken out of these vehicles than passenger cars or smaller light 
trucks. Combining passenger car and light truck safety estimates for 
the proposed standards results in an increase in fatalities over the 
lifetime of the nine model years of MY 2017-2025 of 4 fatalities, 
broken up into an increase of 61 fatalities in passenger cars and 56 
decrease in fatalities in light trucks. NHTSA also analyzed the results 
for different regulatory alternatives in Chapter IX of its PRIA; the 
difference in the results by alternative depends upon how much weight 
reduction is used in that alternative and the types and sizes of 
vehicles that the weight reduction applies to.
---------------------------------------------------------------------------

    \205\ NHTSA has changed the definitions of a passenger car and 
light truck for fuel economy purposes between the time of the Kahane 
2003 analysis and this proposed rule. About 1.4 million 2 wheel 
drive SUVs have been redefined as passenger cars instead of light 
trucks. The Kahane 2011 analysis continues with the definitions used 
in the Kahane 2003 analysis. Thus, there are different definitions 
between Tables IX-1 and IX-2 (which use the old definitions) and 
Table IX-3 (which uses the new definitions).

---------------------------------------------------------------------------

[[Page 74961]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.047

    Using the same coefficients from the 2011 Kahane study, EPA used 
the OMEGA model to conduct a similar analysis. After applying these 
percentage increases to the estimated weight reductions per vehicle 
size by model year assumed in the Omega model, Table II-18 shows the 
results of EPA's safety analysis separately for each model year. These 
are estimated increases or decreases in fatalities over the lifetime of 
the model year fleet. A positive number means that fatalities are 
projected to increase; a negative number means that fatalities are 
projected to decrease. For details, see the EPA RIA Chapter 3.
[GRAPHIC] [TIFF OMITTED] TP01DE11.048

b. Why might the real-world effects be less than or greater than what 
the agencies have calculated?
    As discussed above the ways in which future technological advances 
could potentially mitigate the safety effects estimated for this 
rulemaking: lightweight vehicles could be designed to be both stronger 
and not more aggressive; restraint systems could be improved to deal 
with higher crash pulses in lighter vehicles; crash avoidance 
technologies could reduce the number of overall crashes; roofs could be 
strengthened to improve safety

[[Page 74962]]

in rollovers. As also stated above, however, while we are confident 
that manufacturers will strive to build safe vehicles, it will be 
difficult for both the agencies and the industry to know with certainty 
ahead of time how crash trends will change in the future fleet as 
lightweighted vehicles become more prevalent. Going forward, we will 
have to continue to monitor the crash data as well as changes in 
vehicle weight relative to what we expect.
    Additionally, we note that the total amount of mass reduction used 
in the agencies' analysis for this rulemaking were chosen based on our 
assumptions about how much is technologically feasible without 
compromising safety. Again, while we are confident that manufacturers 
are motivated to build safe vehicles, we cannot predict with certainty 
that they will choose to reduce mass in exactly the ways that the 
agencies have analyzed in response to the standards. In the event that 
manufacturers ultimately choose to reduce mass and/or footprint in ways 
not analyzed by the agencies, the safety effects of the rulemaking may 
likely differ from the agencies' estimates.
    The agencies acknowledge the proposal does not prohibit 
manufacturers from redesigning vehicles to change wheelbase and/or 
track width (footprint). However, as NHTSA explained in promulgating 
MY2008-2011 light truck CAFE standards and MY2011 passenger car and 
light truck CAFE standards, and as the agencies jointly explained in 
promulgating MY2012-2016 CAFE and GHG standards, the agencies believes 
such engineering changes are significant enough to be unattractive as a 
measure to undertake solely to reduce compliance burdens. Similarly, 
the agencies acknowledge that a manufacturer could, without actually 
reengineering specific vehicles to increase footprint, shift production 
toward those that perform well compared to their respective footprint-
based targets. However, NHTSA and, more recently NHTSA and EPA have 
previously explained, because such production shifts would run counter 
to market demands, they would also be competitively unattractive. Based 
on this regulatory design, the analysis assumes this proposal will not 
have either of the effects described above.
    As discussed in Chapter 2 of the Draft Joint TSD, the agencies note 
that the standard is flat for vehicles smaller than 41 square feet and 
that downsizing in this category could help achieve overall compliance, 
if the vehicles are desirable to consumers. The agencies note that less 
than 10 percent of MY2008 passenger cars were below 41 square feet, and 
due to the overall lower level of utility of these vehicles, and the 
engineering challenges involved in ensuring that these vehicles meet 
all applicable federal motor vehicle safety standards (FMVSS), we 
expect a significant increase in this segment of the market in the 
future is unlikely. Please see Chapter 2 of the Draft Joint TSD for 
additional discussion.
    We seek comment on the appropriateness of the overall analytic 
assumption that the attribute-based aspect of the proposed standards 
will have no effect on the overall distribution of vehicle footprints. 
Notwithstanding the agencies current judgment that such deliberate 
reengineering or production shift are unlikely as pure compliance 
strategies, both agencies are considering the potential future 
application of vehicle choice models, and anticipate that doing so 
could result in estimates that market shifts induced by changes in 
vehicle prices and fuel economy levels could lead to changes in fleet's 
footprint distribution. However, neither agency is currently able to 
include vehicle choice modeling in our analysis.
    As discussed in Chapter 2 of the Draft Joint TSD, the agencies note 
that the standard is flat for vehicles smaller than 41 square feet and 
that downsizing in this category could help achieve overall compliance, 
if the vehicles are desirable to consumers. The agencies note that less 
than 10 percent of MY2008 passenger cars were below 41 square feet, and 
due to the overall lower level of utility of these vehicles, and the 
engineering challenges involved in ensuring that these vehicles meet 
all applicable federal motor vehicle safety standards (FMVSS), we 
expect a significant increase in this segment of the market in the 
future is unlikely. Please see Chapter 2 of the Draft Joint TSD for 
additional discussion.
c. Do the agencies plan to make any changes in these estimates for the 
final rule?
    As discussed above, the agencies have based our estimates of safety 
effects due to the proposed standards on Kahane's 2011 report. That 
report is currently undergoing peer review and is docketed for public 
review;\206\ the peer review comments and response to peer review 
comments, along with any revisions to the report in response to that 
review, will also be docketed there. Depending on the results of the 
peer review, our calculation of safety effects for the final rule will 
also be revised accordingly. The agencies will also consider any 
comments received on the proposed rule, and determine at that time 
whether and how our estimates should be changed in response to those 
comments. Additional studies published by the agencies or other 
independent researchers as previously discussed will also be 
considered, along with any other relevant information.
---------------------------------------------------------------------------

    \206\ Kahane, C. J. (2011). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 2000-2007 Passenger Cars and 
LTVs,'', July 2011. The report is available in the NHTSA docket, 
NHTSA-2010-0152. You can access the docket at http://www.regulations.gov/#!home by typing `NHTSA-2010-0152' where it says 
``enter keyword or ID'' and then clicking on ``Search.''
---------------------------------------------------------------------------

III. EPA Proposal for MYs 2017-2025 Greenhouse Gas Vehicle Standards

A. Overview of EPA Rule

1. Introduction
    Soon after the completion of the successful model years (MYs) 2012-
2016 rulemaking in May 2010, the President, with support from the auto 
manufacturers, requested that EPA and NHTSA work to extend the National 
Program to MYs 2017-2025 light duty vehicles. The agencies were 
requested to develop ``a coordinated national program under the CAA 
(Clean Air Act) and the EISA (Energy Independence and Security Act of 
2007) to improve fuel efficiency and to reduce greenhouse gas emissions 
of passenger cars and light-duty trucks of model years 2017-2025.'' 
\207\ EPA's proposal grows directly out of our work with NHTSA and CARB 
in developing such a continuation of the National Program. This 
proposal provides important benefits to society and consumers in the 
form of reduced emissions of greenhouse gases (GHGs), reduced 
consumption of oil, and fuel savings for consumers, all at reasonable 
costs. It provides industry with the important certainty and leadtime 
needed to implement the technology changes that will achieve these 
benefits, as part of a harmonized set of federal requirements. Acting 
now to address the standards for MYs 2017-2025 will allow for the 
important continuation of the National Program that started with MYs 
2012-2016.
---------------------------------------------------------------------------

    \207\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards.
---------------------------------------------------------------------------

    EPA is proposing GHG emissions standards for light-duty vehicles, 
light-duty trucks, and medium-duty passenger vehicles (hereafter light 
vehicles) for MYs 2017 through 2025. These vehicle categories, which 
include cars, sport utility vehicles, minivans, and pickup trucks used 
for personal

[[Page 74963]]

transportation, are responsible for almost 60% of all U.S. 
transportation related GHG emissions.
    If finalized, this proposal would be the second EPA rule to 
regulate light vehicle GHG emissions under the Clean Air Act (CAA), 
building upon the GHG emissions standards for MYs 2012-2016 that were 
established in 2010,\208\ and the third rule to regulate GHG emissions 
from the transportation sector.\209\ Combined with the standards 
already in effect for MYs 2012-2016, the proposed standards would 
result in MY 2025 light vehicles emitting approximately one-half of the 
GHG emissions of MY 2010 vehicles and would represent the most 
significant federal action ever taken to reduce GHG emissions (and 
improve fuel economy) in the U.S.
---------------------------------------------------------------------------

    \208\ 75 FR 25324 (May 7, 2010).
    \209\ 76 FR 57106 (September 15, 2011) established GHG emission 
standards for heavy-duty vehicles and engines for model years 2014-
2018.
---------------------------------------------------------------------------

    From a societal standpoint, the proposed GHG emissions standards 
are projected to save approximately 2 billion metric tons of GHG 
emissions and 4 billion barrels of oil over the lifetimes of those 
vehicles sold in MYs 2017-2025. EPA estimates that fuel savings will 
far outweigh higher vehicle costs, and that the net benefits to society 
will be in the range of $311 billion (at 7% discount rate) to $421 
billion (3% discount) over the lifetimes of those vehicles sold in MYs 
2017-2025. Just in calendar year 2040 alone, after the on-road vehicle 
fleet has largely turned over to vehicles sold in MY 2025 and later, 
EPA projects GHG emissions savings of 462 million metric tons, oil 
savings of 2.63 million barrels per day, and net benefits of $144 
billion using the $22/ton CO2 social cost of carbon value.
    EPA estimates that these proposed standards will save consumers 
money. Higher costs for new technology, sales taxes, and insurance will 
add, on average in the first year, about $2100 for consumers who buy a 
new vehicle in MY 2025. But those consumers who drive their MY 2025 
vehicle for its entire lifetime will save, on average, $5200 (7% 
discount rate) to $6600 (3% discount) in fuel savings, for a net 
lifetime savings of $3000-$4400. For those consumers who purchase their 
new MY 2025 vehicle with cash, the discounted fuel savings will offset 
the higher vehicle cost in less than 4 years, and fuel savings will 
continue for as long as the consumer owns the vehicle. Those consumers 
that buy a new vehicle with a 5-year loan will benefit from a monthly 
cash flow savings of $12 (or about $140 per year), on average, as the 
monthly fuel savings more than offsets the higher monthly payment due 
to the higher incremental vehicle cost.
    The proposed standards are designed to allow full consumer choice, 
in that they are footprint-based, i.e., larger vehicles have higher 
absolute GHG emissions targets and smaller vehicles have lower absolute 
GHG emissions targets. While the GHG emissions targets do become more 
stringent each year, the emissions targets have been selected to allow 
compliance by vehicles of all sizes and with current levels of vehicle 
attributes such as utility, size, safety, and performance. Accordingly, 
these proposed standards are projected to allow consumers to choose 
from the same mix of vehicles that are currently in the marketplace.
    Section I above provides a comprehensive overview of the joint EPA/
NHTSA proposal, including the history and rationale for a National 
Program that allows manufacturers to build a single fleet of light 
vehicles that can satisfy all federal and state requirements for GHG 
emissions and fuel economy, the level and structure of the proposed GHG 
emissions and corporate average fuel economy (CAFE) standards, the 
compliance flexibilities proposed to be available to manufacturers, the 
mid-term evaluation, and a summary of the costs and benefits of the GHG 
and CAFE standards based on a ``model year lifetime analysis.''
    In this Section III, EPA provides more detailed information about 
EPA's proposed GHG emissions standards. After providing an overview of 
key information in this section (III.A), EPA discusses the proposed 
standards (III.B); the vehicles covered by the standards, various 
compliance flexibilities available to manufacturers, and a mid-term 
evaluation (III.C); the feasibility of the proposed standards (III.D); 
provisions for certification, compliance, and enforcement (III.E); the 
reductions in GHG emissions projected for the proposed standards and 
the associated effects of these reductions (III.F); the impact of the 
proposal on non-GHG emissions and their associated effects (III.G); the 
estimated cost, economic, and other impacts of the proposal (III.H); 
and various statutory and executive order issues (III.I).
2. Why is EPA proposing this Rule?
a. Light Duty Vehicle Emissions Contribute to Greenhouse Gases and the 
Threat of Climate Change
    Greenhouse gases (GHGs) are gases in the atmosphere that 
effectively trap some of the Earth's heat that would otherwise escape 
to space. GHGs are both naturally occurring and anthropogenic. The 
primary GHGs of concern that are directly emitted by human activities 
include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, 
perfluorocarbons, and sulfur hexafluoride.
    These gases, once emitted, remain in the atmosphere for decades to 
centuries. They become well mixed globally in the atmosphere and their 
concentrations accumulate when emissions exceed the rate at which 
natural processes remove GHGs from the atmosphere. The heating effect 
caused by the human-induced buildup of GHGs in the atmosphere is very 
likely the cause of most of the observed global warming over the last 
50 years. The key effects of climate change observed to date and 
projected to occur in the future include, but are not limited to, more 
frequent and intense heat waves, more severe wildfires, degraded air 
quality, heavier and more frequent downpours and flooding, increased 
drought, greater sea level rise, more intense storms, harm to water 
resources, continued ocean acidification, harm to agriculture, and harm 
to wildlife and ecosystems. A more in depth explanation of observed and 
projected changes in GHGs and climate change, and the impact of climate 
change on health, society, and the environment is included in Section 
III.F below.
    Mobile sources represent a large and growing share of U.S. GHG 
emissions and include light-duty vehicles, light-duty trucks, medium 
duty passenger vehicles, heavy duty trucks, airplanes, railroads, 
marine vessels and a variety of other sources. In 2007, all mobile 
sources emitted 30% of all U.S. GHGs, and have been the source of the 
largest absolute increase in U.S. GHGs since 1990. Transportation 
sources, which do not include certain off highway sources such as farm 
and construction equipment, account for 27% of U.S. GHG emissions, and 
motor vehicles (CAA section 202(a)), which include light-duty vehicles, 
light-duty trucks, medium-duty passenger vehicles, heavy-duty trucks, 
buses, and motorcycles account for 23% of total U.S. GHGs.
    Light duty vehicles emit carbon dioxide, methane, nitrous oxide and 
hydrofluorocarbons. Carbon dioxide (CO2) is the end product of fossil 
fuel combustion. During combustion, the carbon stored in the fuels is 
oxidized and emitted as CO2 and smaller amounts of other carbon 
compounds. Methane (CH4) emissions are a function of the methane 
content of the motor fuel, the amount of hydrocarbons passing 
uncombusted through the

[[Page 74964]]

engine, and any post-combustion control of hydrocarbon emissions (such 
as catalytic converters). Nitrous oxide (N2O) (and nitrogen 
oxide (NOX)) emissions from vehicles and their engines are 
closely related to air-fuel ratios, combustion temperatures, and the 
use of pollution control equipment. For example, some types of 
catalytic converters installed to reduce motor vehicle NOX, 
carbon monoxide (CO) and hydrocarbon (HC) emissions can promote the 
formation of N2O. Hydrofluorocarbons (HFC) are progressively 
replacing chlorofluorocarbons (CFC) and hydrochlorofluorocarbons (HCFC) 
in these vehicles' cooling and refrigeration systems as CFCs and HCFCs 
are being phased out under the Montreal Protocol and Title VI of the 
CAA. There are multiple emissions pathways for HFCs with emissions 
occurring during charging of cooling and refrigeration systems, during 
operations, and during decommissioning and disposal.
b. Basis for Action Under the Clean Air Act
    Section 202(a)(1) of the Clean Air Act (CAA) states that ``the 
Administrator shall by regulation prescribe (and from time to time 
revise) * * * standards applicable to the emission of any air pollutant 
from any class or classes of new motor vehicles * * *, which in his 
judgment cause, or contribute to, air pollution which may reasonably be 
anticipated to endanger public health or welfare.'' The Administrator 
has found that the elevated concentrations of a group of six GHGs in 
the atmosphere may reasonably be anticipated to endanger public health 
and welfare, and that emissions of GHGs from new motor vehicles and new 
motor vehicle engines contribute to this air pollution.
    As a result of these findings, section 202(a) requires EPA to issue 
standards applicable to emissions of that air pollutant, and authorizes 
EPA to revise them from time to time. This preamble describes the 
proposed revisions to the current standards to control emissions of CO2 
and HFCs from new light-duty motor vehicles.\210\ For further 
discussion of EPA's authority under section 202(a), see Section I.D. of 
the preamble.
---------------------------------------------------------------------------

    \210\ EPA is not proposing to amend the substantive standards 
adopted in the 2012-2016 light-duty vehicle rule for N2O 
and CH4, but is proposing revisions to the options that 
manufacturers have in meeting the N2O and CH4 standards, and to the 
timeframe for manufacturers to begin measuring N2O emissions. See 
Section III.B below.
---------------------------------------------------------------------------

c. EPA's Endangerment and Cause or Contribute Findings for Greenhouse 
Gases Under Section 202(a) of the Clean Air Act
    On December 15, 2009, EPA published its findings that elevated 
atmospheric concentrations of GHGs are reasonably anticipated to 
endanger the public health and welfare of current and future 
generations, and that emissions of GHGs from new motor vehicles 
contribute to this air pollution. Further information on these findings 
may be found at 74 FR 66496 (December 15, 2009) and 75 FR 49566 (Aug. 
13, 2010).
3. What is EPA proposing?
a. Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty Passenger 
Vehicle Greenhouse Gas Emission Standards and Projected Emissions 
Levels
    EPA is proposing tailpipe carbon dioxide (CO2) standards 
for cars and light trucks based on the CO2 emissions-
footprint curves for cars and light trucks that are shown above in 
Section I.B.3 and below in Section III.B. These curves establish 
different CO2 emissions targets for each unique car and 
truck footprint value. Generally, the larger the vehicle footprint, the 
higher the corresponding vehicle CO2 emissions target. 
Vehicle CO2 emissions will be measured over the EPA city and 
highway tests. Under this proposal, various incentives and credits are 
available for manufacturers to demonstrate compliance with the 
standards. See Section I.B for a comprehensive overview of both the EPA 
CO2 emissions-footprint standard curves and the various 
compliance flexibilities that are proposed to be available to the 
manufacturers in meeting the EPA tailpipe CO2 standards.
    EPA projects that the proposed tailpipe CO2 emissions-
footprint curves would yield a fleetwide average light vehicle 
CO2 emissions compliance target level in MY 2025 of 163 
grams per mile, which would represent an average reduction of 35 
percent relative to the projected average light vehicle CO2 
level in MY 2016. On average, car CO2 emissions would be 
reduced by about 5 percent per year, while light truck CO2 emissions 
would be reduced by about 3.5 percent per year from MY 2017 through 
2021, and by about 5 percent per year from MY 2022 through 2025.
    The following three tables, Table III-1 through Table III-3, 
summarize EPA's projections of what the proposed standards would mean 
in terms of projected CO2 emissions reductions for passenger 
cars, light trucks, and the overall fleet combining passenger cars and 
light trucks for MYs 2017-2025. It is important to emphasize that these 
projections are based on technical assumptions by EPA about various 
matters, including the mix of cars and trucks, as well as the mix of 
vehicle footprint values, in the fleet in varying years. It is possible 
that the actual CO2 emissions values will be either higher 
or lower than the EPA projections.
    In each of these tables, the column ``Projected CO2 
Compliance Target'' represents our projected fleetwide average 
CO2 compliance target value based on the proposed 
CO2-footprint curve standards as well as the projected mixes 
of cars and trucks and vehicle footprint levels. This Compliance Target 
represents the projected fleetwide average of the projected standards 
for the various manufacturers.
    The column(s) under ``Incentives'' represent the emissions impact 
of the proposed multiplier incentive for EV/PHEV/FCVs and the proposed 
pickup truck incentives. These incentives allow manufacturers to meet 
their Compliance Targets with CO2 emissions levels slightly higher than 
they would otherwise have to be, but do not reflect actual real-world 
CO2 emissions reductions. As such they reduce the emissions 
reductions that the CO2 standards would be expected to 
achieve.
    The column ``Projected Achieved CO2'' is the sum of the 
CO2 Compliance Target and the value(s) in the ``Incentive'' 
columns. This Achieved CO2 value is a better reflection of 
the CO2 emissions benefits of the standards, since it 
accounts for the incentive programs. One incentive that is not 
reflected in these tables is the 0 gram per mile compliance value for 
EV/PHEV/FCVs. The 0 gram per mile value accurately reflects the 
tailpipe CO2 gram per mile achieved by these vehicles; 
however, the use of this fuel does impact the overall GHG reductions 
associated with the proposed standards due to fuel production and 
distribution-related upstream GHG emissions which are projected to be 
greater than the upstream GHG emissions associated with gasoline from 
oil. The combined impact of the 0 gram per mile and multiplier 
incentive for EV/PHEV/FCVs on overall program GHG emissions is 
discussed in more detail below in Section III.C.2.
    The columns under ``Credits'' quantify the projected CO2 
emissions credits that we project manufacturers will achieve through 
improvements in air conditioner refrigerants and efficiency. These 
credits reflect real world emissions reductions, so they do not raise 
the levels of the Achieved CO2 values, but they do allow 
manufacturers to comply with their compliance targets with 2-cycle test 
CO2 emissions values

[[Page 74965]]

higher than otherwise. One other credit program that could similarly 
affect the 2-cycle CO2 values is the off-cycle credit 
program, but it is not included in this table due to the uncertainty 
inherent in projecting the future use of these technologies. The off-
cycle credits, like A/C credits, reflect real world reductions, so they 
would not change the CO2 Achieved values.
    The column ``Projected 2-cycle CO2'' is the projected fleetwide 2-
cycle CO2 emissions values that manufacturers would have to 
achieve in order to be able to comply with the proposed standards. This 
value is the sum of the projected fleetwide credit, incentive, and 
Compliance Target values.\211\
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    \211\ For MY 2016, the Temporary Leadtime Allowance Alternative 
Standards are available to manufacturers. In the MYs 2012-2016 rule, 
we estimated the impact of this credit in MY 2016 to be 0.1 gram/
mile. Due to the small magnitude, we have not included this in the 
following tables for the MY 2016 base year.
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BILLING CODE 4910-59-C
    Table III-4 shows the projected real world CO2 emissions 
and fuel economy values associated with the proposed CO2 
standards. These real world estimates, similar to values shown on new 
vehicle labels, reflect the fact that the way cars and trucks are 
operated in the real world generally results in higher CO2 
emissions and lower fuel economy than laboratory test results used to 
determine compliance with the standards, which are performed under 
tightly controlled conditions. There are many assumptions that must be 
made for these projections, and real world CO2 emissions and 
fuel economy performance can vary based on many factors.
    The real world tailpipe CO2 emissions projections in 
Table III-4 are calculated starting with the projected 2-cycle 
CO2 emissions values in Table III-1 through Table III-3, 
subtracting the air conditioner efficiency credits, and then 
multiplying by a factor of 1.25. The 1.25 factor is an approximation of 
the ratio of real world CO2 emissions to 2-cycle test 
CO2 emissions for the fleet in the

[[Page 74968]]

recent past. It is not possible to know the appropriate factor for 
future vehicle fleets, as this factor will depend on many factors such 
as technology performance, driver behavior, climate conditions, fuel 
composition, etc. Issues associated with future projections of this 
factor are discussed in TSD 4. Air conditioner efficiency credits were 
subtracted from the 2-cycle CO2 emissions values as air 
conditioning efficiency improvements will increase real world fuel 
economy. The real world fuel economy value is calculated by dividing 
8887 grams of CO2 per gallon of gasoline by the real world 
tailpipe CO2 emissions value.
[GRAPHIC] [TIFF OMITTED] TP01DE11.054

    As discussed both in Section I and later in this Section III, EPA 
either already has adopted or is proposing provisions for averaging, 
banking, and trading of credits, that allow annual credits for a 
manufacturer's over-compliance with its unique fleet-wide average 
standard, carry-forward and carry-backward of credits, the ability to 
transfer credits between a manufacturer's car and truck fleets, and 
credit trading between manufacturers. EPA is proposing a one-time 
carry-forward of any credits such that any credits generated in MYs 
2010-2016 can be used through MY 2021. These provisions are not 
expected to change the emissions reductions achieved by the standards, 
but should significantly reduce the cost of achieving those reductions. 
The tables above do not reflect the year to year impact of these 
provisions. For example, EPA expects that many manufacturers may 
generate credits by over complying with the standards for cars, and 
transfer such credits to its truck fleet. Table III-1 (cars) and Table 
III-2 (trucks) do not reflect such transfers. If on an industry wide 
basis more credits are transferred from cars to trucks than vice versa, 
you would expect to achieve greater reductions from cars than reflected 
in Table III-1 (lower CO2 gram/miles values) and less 
reductions from trucks than reflected in Table III-2 (higher 
CO2 gram/mile values). Credit transfers between cars and 
trucks would not be expected to change the results for the combined 
fleet, reflected in Table III-3.
    The proposed rule would also exclude from coverage a limited set of 
vehicles: emergency and police vehicles, and vehicles manufactured by 
small businesses. As discussed in Section III.B below, these exclusions 
have very limited impact on the total GHG emissions reductions from the 
light-

[[Page 74969]]

duty vehicle fleet. We also do not anticipate significant impacts on 
total GHG emissions reductions from the proposed provisions allowing 
small volume manufacturers to petition EPA for alternative standards. 
See Section III.B.5 below.
b. Environmental and Economic Benefits and Costs of EPA's Standards
i. Model Year Lifetime Analysis
    Section I.C provides a comprehensive discussion of the projected 
benefits and costs associated with the proposed MYs 2017-2025 GHG and 
CAFE standards based on a ``model year lifetime'' analysis, i.e., the 
benefits and costs associated with the lifetime operation of the new 
vehicles sold in these nine model years. It is important to note that 
while the incremental vehicle costs associated with MY 2017 vehicles 
will in fact occur in calendar year 2017, the benefits associated with 
MY 2017 vehicles will be split among all the calendar years from 2017 
through the calendar year during which the last MY 2017 vehicle would 
be retired.
    Table III-5 provides a summary of the GHG emissions and oil savings 
associated with the lifetime operation of all the vehicles sold in each 
model year. Cumulatively, for the nine model years from 2017 through 
2025, the proposed standards are projected to save approximately 2 
billion metric tons of GHG emissions and 4 billion barrels of oil.
    Table III-6 provides a summary of the most important projected 
economic impacts of the proposed GHG emissions standards based on this 
model year lifetime analytical approach. These monetized dollar values 
are all discounted to the first year of each model year, then summed up 
across all model years. With a 3% discount rate, cumulative incremental 
vehicle technology cost for MYs 2017-2025 vehicles is $140 billion, 
fuel savings is $444 billion, other monetized benefits are $117 
billion, and program net benefits are projected to be $421 billion. 
Using a 7% discount rate, the projected program net benefits are $311 
billion.
    As discussed previously, EPA recognizes that some of these same 
benefits and costs are also attributable to the CAFE standard contained 
in this joint proposal, although the GHG program achieves greater 
reductions of both GHG emissions and petroleum. More details associated 
with this model year lifetime analysis of the proposed GHG standards 
are presented in Sections III.F and III.H.
[GRAPHIC] [TIFF OMITTED] TP01DE11.055

ii. Calendar Year Analysis
    In addition to the model year lifetime analysis projections 
summarized above, EPA also performs a ``calendar year'' analysis that 
projects the environmental and economic impacts associated with the 
proposed tailpipe CO2 standards during specific calendar 
years out to 2050. This calendar year approach reflects the timeframe 
when the benefits would be achieved and the costs incurred. Because the 
EPA tailpipe CO2 emissions standards will remain in effect 
unless and until they are changed, the projected impacts in this 
calendar year analysis beyond calendar year 2025 reflect vehicles sold 
in model years after 2025 (e.g., most of the benefits in calendar year 
2040 would be due to vehicles sold after MY 2025).
    Table III-7 provides a summary of the most important projected 
benefits and costs of the proposed EPA GHG emissions standards based on 
this calendar year analysis. In calendar year 2025, EPA projects GHG 
savings of 151 million metric tons and oil savings of 0.83 million 
barrels per day. These would grow to 547 million metric tons of GHG 
savings and 3.12 million barrels of oil per day by calendar year 2050. 
Program net benefits are projected to be $18 billion in calendar year 
2025, growing to $198 billion in calendar year 2050. Program net 
benefits over the 34-year period from 2017 through 2050 are projected 
to have a net present value in 2012 of $600 billion (7% discount rate) 
to $1.4 trillion (3% discount rate).
    More details associated with this calendar year analysis of the 
proposed

[[Page 74970]]

GHG standards are presented in Sections III.F and III.H.
BILLING CODE 4910-59-P
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BILLING CODE 4910-59-C
iii. Consumer Analysis
    The model year lifetime and calendar year analytical approaches 
discussed above aggregate the environmental and economic impacts across 
the nationwide light vehicle fleet. EPA has also projected the average 
impact of the proposed GHG standards on individual consumers who own 
and drive MY 2025 light vehicles over their lifetimes.
    Table III-8 shows, on average, several key consumer impacts 
associated with the proposed tailpipe CO2 standard for

[[Page 74972]]

MY 2025 vehicles. Some of these factors are dependent on the assumed 
discount factors, and this table uses the same 3% and 7% discount 
factors used throughout this preamble. EPA uses AEO2011 fuel price 
projections of $3.25 per gallon in calendar year 2017, rising to $3.54 
per gallon in calendar year 2025 and $3.85 per gallon in calendar year 
2040.
    EPA projects that the new technology necessary to meet the proposed 
MY 2025 standard would add, on average, an extra $1950 (including 
markup) to the sticker price of a new MY 2025 light-duty vehicle. 
Including higher vehicle sales taxes and first-year insurance costs, 
the projected incremental first-year cost to the consumer is about 
$2100 on average. The projected incremental lifetime vehicle cost to 
the consumer, reflecting higher insurance premiums over the life of the 
vehicle, is, on average, about $2200. For all of the consumers who 
drive MY 2025 light-duty vehicles, the proposed standards are projected 
to yield a net savings of $3000 (7% discount rate) to $4400 (3% 
discount) over the lifetime of the vehicle, as the discounted lifetime 
fuel savings of $5200-$6600 is 2.4 to 3 times greater than the $2200 
incremental lifetime vehicle cost to the consumer.
    Of course, many vehicles are owned by more than one consumer. The 
payback period and monthly cash flow approaches are two ways to 
evaluate the economic impact of the MY 2025 standard on those new car 
buyers who do not own the vehicle for its entire lifetime. Projected 
payback periods of 3.7-3.9 years means that, for a consumer that buys a 
new vehicle with cash, the discounted fuel savings for that consumer 
would more than offset the incremental lifetime vehicle cost in 4 
years. If the consumer owns the vehicle beyond this payback period, the 
vehicle will save money for the consumer. For a consumer that buys a 
new vehicle with a 5-year loan, the monthly cash flow savings of $12 
(or about $140 per year) shows that the consumer would benefit 
immediately as the monthly fuel savings more than offsets the higher 
monthly payment due to the higher incremental first-year vehicle cost.
    The final entries in Table III-8 show the CO2 and oil 
savings that would be associated with the MY 2025 vehicles on average, 
both on a lifetime basis and in the first full year of operation. On 
average, a consumer who owns a MY 2025 vehicle for its entire lifetime 
is projected to emit 20 fewer metric tons of CO2 and consume 
2200 fewer gallons of gasoline due to the proposed standards.
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BILLING CODE 4910-59-C
4. Basis for the GHG Standards Under Section 202(a)
    EPA has significant discretion under section 202(a) of the Act in 
how to structure the standards that apply to the emission of the air 
pollutant at issue here, the aggregate group of six GHGs, as well as to 
the content of such standards. See generally 74 FR at 49464-65. EPA 
statutory authority under section 202(a)(1) of the Clean Air Act (CAA) 
is discussed in more detail in Section I.D of the preamble. In this 
rulemaking, EPA is proposing a CO2 tailpipe emissions 
standard that provides for credits based on reductions of HFCs, as the 
appropriate way to issue standards applicable to emissions of the 
single air pollutant, the aggregate group of six GHGs. EPA is not 
proposing to change the methane and nitrous oxide standards already in 
place (although EPA is proposing certain changes to the compliance 
mechanisms for these standards as explained in Section III.B below). 
EPA is not setting any standards for perfluorocarbons or sulfur 
hexafluoride, as they are not emitted by motor vehicles. The following 
is a summary of the basis for the proposed GHG standards under section 
202(a), which is discussed in more detail in the following portions of 
Section III.
    With respect to CO2 and HFCs, EPA is proposing 
attribute-based light-duty car and truck standards that achieve large 
and important emissions reductions of GHGs. EPA has evaluated the 
technological feasibility of the standards, and the information and 
analysis performed by EPA indicates that these standards are feasible 
in the lead time provided. EPA and NHTSA have carefully evaluated the 
effectiveness of individual technologies as well as the interactions 
when technologies are combined. EPA projects that manufacturers will be 
able to meet the standards by employing a wide variety of technologies 
that are already commercially available. EPA's analysis also takes into 
account certain flexibilities that will facilitate compliance. These 
flexibilities include averaging, banking, and trading of various types 
of credits. For a few very small volume manufacturers, EPA is proposing 
to allow manufacturers to petition for alternative standards.
    EPA, as a part of its joint technology analysis with NHTSA, has 
performed what we believe is the most comprehensive federal vehicle 
technology analysis in history. We carefully considered the cost to 
manufacturers of meeting the standards, estimating piece costs for all 
candidate technologies, direct manufacturing costs, cost markups to 
account for manufacturers' indirect costs, and manufacturer cost 
reductions attributable to learning. In estimating manufacturer costs, 
EPA took into account manufacturers' own practices such as making major 
changes to vehicle technology packages during a planned redesign cycle. 
EPA then projected the average cost across the industry to employ this 
technology, as well as manufacturer-by-manufacturer costs. EPA 
considers the per vehicle costs estimated by this analysis to be within 
a reasonable range in light of the emissions reductions and benefits 
achieved. EPA projects, for example, that the fuel savings over the 
life of the vehicles will more than offset the increase in cost 
associated with the technology used to meet the standards. As explained 
in Section III.D.6 below, EPA has also investigated potential standards 
both more and less stringent than those being proposed and has rejected 
them. Less stringent standards would forego emission reductions which 
are feasible, cost effective, and cost feasible, with short consumer 
payback periods. EPA judges that the proposed standards are appropriate 
and preferable to more stringent alternatives based largely on 
consideration of cost--both to manufacturers and to consumers--and the 
potential for overly aggressive penetration rates for advanced 
technologies relative to the penetration rates seen in the proposed 
standards, especially in the face of unknown degree of consumer 
acceptance of both the increased costs and the technologies themselves.
    EPA has also evaluated the impacts of these standards with respect 
to reductions in GHGs and reductions in oil usage. For the lifetime of 
the model year 2017-2025 vehicles we estimate GHG reductions of 
approximately 2 billion metric tons and fuel reductions of about 4 
billion barrels of oil. These are important and significant reductions. 
EPA has also analyzed a variety of other impacts of the standards, 
ranging from the standards' effects on emissions of non-GHG pollutants, 
impacts on noise, energy, safety and congestion. EPA has also 
quantified the cost and benefits of the standards, to the extent 
practicable. Our

[[Page 74975]]

analysis to date indicates that the overall quantified benefits of the 
standards far outweigh the projected costs. We estimate the total net 
social benefits (lifetime present value discounted to the first year of 
the model year) over the life of MY 2017-2025 vehicles to be $421 
billion with a 3% discount rate and $311 billion with a 7% discount 
rate.
    Under section 202(a), EPA is called upon to set standards that 
provide adequate lead-time for the development and application of 
technology to meet the standards. EPA's standards satisfy this 
requirement given the present existence of the technologies on which 
the proposed rule is predicated and the substantial lead times afforded 
under the proposal (which by MY2025 allow for multiple vehicle redesign 
cycles and so affords opportunities for adding technologies in the most 
cost efficient manner, see 75 FR at 25407). In setting the standards, 
EPA is called upon to weigh and balance various factors, and to 
exercise judgment in setting standards that are a reasonable balance of 
the relevant factors. In this case, EPA has considered many factors, 
such as cost, impacts on emissions (both GHG and non-GHG), impacts on 
oil conservation, impacts on noise, energy, safety, and other factors, 
and has where practicable quantified the costs and benefits of the 
proposed rule. In summary, given the technical feasibility of the 
standard, the cost per vehicle in light of the savings in fuel costs 
over the lifetime of the vehicle, the very significant reductions in 
emissions and in oil usage, and the significantly greater quantified 
benefits compared to quantified costs, EPA is confident that the 
standards are an appropriate and reasonable balance of the factors to 
consider under section 202(a). See Husqvarna AB v. EPA, 254 F. 3d 195, 
200 (DC Cir. 2001) (great discretion to balance statutory factors in 
considering level of technology-based standard, and statutory 
requirement ``to [give appropriate] consideration to the cost of 
applying * * * technology'' does not mandate a specific method of cost 
analysis); see also Hercules Inc. v. EPA, 598 F. 2d 91, 106 (DC Cir. 
1978) (``In reviewing a numerical standard we must ask whether the 
agency's numbers are within a zone of reasonableness, not whether its 
numbers are precisely right''); Permian Basin Area Rate Cases, 390 U.S. 
747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426 
U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 
F. 3d 1071, 1084 (DC Cir. 2002) (same).
    EPA recognizes that most of the technologies that we are 
considering for purposes of setting standards under section 202(a) are 
commercially available and already being utilized to a limited extent 
across the fleet, or will soon be commercialized by one or more major 
manufacturers. The vast majority of the emission reductions that would 
result from this rule would result from the increased use of these 
technologies. EPA also recognizes that this rule would enhance the 
development and commercialization of more advanced technologies, such 
as PHEVs and EVs and strong hybrids as well. In this technological 
context, there is no clear cut line that indicates that only one 
projection of technology penetration could potentially be considered 
feasible for purposes of section 202(a), or only one standard that 
could potentially be considered a reasonable balancing of the factors 
relevant under section 202(a). EPA therefore evaluated several 
alternative standards, some more stringent than the promulgated 
standards and some less stringent.
    See Section III.D.6 for EPA's analysis of alternative GHG emissions 
standards.
5. Other Related EPA Motor Vehicle Regulations
a. EPA's Recent Heavy-Duty GHG Emissions Rulemaking
    EPA and NHTSA recently conducted a joint rulemaking to establish a 
comprehensive Heavy-Duty National Program that will reduce greenhouse 
gas emissions and fuel consumption for on-road heavy-duty vehicles 
beginning in MY 2014 (76 FR 57106 (September 15, 2011)). EPA's final 
carbon dioxide (CO2), nitrous oxide (N2O), and 
methane (CH4) emissions standards, along with NHTSA's final 
fuel consumption standards, are tailored to each of three regulatory 
categories of heavy-duty vehicles: (1) Combination Tractors; (2) Heavy-
duty Pickup Trucks and Vans; and (3) Vocational Vehicles. The rules 
include separate standards for the engines that power combination 
tractors and vocational vehicles. EPA also set hydrofluorocarbon 
standards to control leakage from air conditioning systems in 
combination tractors and heavy-duty pickup trucks and vans.
    The agencies estimate that the combined standards will reduce 
CO2 emissions by approximately 270 million metric tons and 
save 530 million barrels of oil over the life of vehicles sold during 
the 2014 through 2018 model years, providing $49 billion in net 
societal benefits when private fuel savings are considered. See 76 FR 
at 57125-27.
b. EPA's Plans for Further Standards for Light Vehicle Criteria 
Pollutants and Gasoline Fuel Quality
    In the May 21, 2010 Presidential Memorandum, in addition to 
addressing GHGs and fuel economy, the President also requested that EPA 
examine its broader motor vehicle air pollution control program. The 
President requested that ``[t]he Administrator of the EPA review for 
adequacy the current nongreenhouse gas emissions regulations for new 
motor vehicles, new motor vehicle engines, and motor vehicle fuels, 
including tailpipe emissions standards for nitrogen oxides and air 
toxics, and sulfur standards for gasoline. If the Administrator of the 
EPA finds that new emissions regulations are required, then I request 
that the Administrator of the EPA promulgate such regulations as part 
of a comprehensive approach toward regulating motor vehicles.'' \214\ 
EPA is currently in the process of conducting an assessment of the 
potential need for additional controls on light-duty vehicle non-GHG 
emissions and gasoline fuel quality. EPA has been actively engaging in 
technical conversations with the automobile industry, the oil industry, 
nongovernmental organizations, the states, and other stakeholders on 
the potential need for new regulatory action, including the areas that 
are specifically mentioned in the Presidential Memorandum. EPA will 
coordinate all future actions in this area with the State of 
California.
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    \214\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards.
---------------------------------------------------------------------------

    Based on this assessment, in the near future, EPA expects to 
propose a separate but related program that would, in general, affect 
the same set of new vehicles on the same timeline as would the proposed 
light-duty GHG emissions standards. It would be designed to address air 
quality problems with ozone and PM, which continue to be serious 
problems in many parts of the country, and light-duty vehicles continue 
to play a significant role.
    EPA expects that this related program, called ``Tier 3'' vehicle 
and fuel standards, would among other things propose tailpipe and 
evaporative standards to reduce non-GHG pollutants from light-duty 
vehicles, including volatile organic compounds, nitrogen oxides, 
particulate matter, and air toxics. EPA's intent, based on extensive 
interaction to date with the automobile manufacturers and other 
stakeholders, is to propose a Tier 3 program that would allow 
manufacturers to proceed with

[[Page 74976]]

coordinated future product development plans with a full understanding 
of the major regulatory requirements they will be facing over the long 
term. This coordinated regulatory approach would allow manufacturers to 
design their future vehicles so that any technological challenges 
associated with meeting both the GHG and Tier 3 standards could be 
efficiently addressed.
    It should be noted that under EPA's current regulations, GHG 
emissions and CAFE compliance testing for gasoline vehicles is 
conducted using a defined fuel that does not include any amount of 
ethanol.\215\ If the certification test fuel is changed to some 
ethanol-based fuel through a future rulemaking, EPA would be required 
under EPCA to address the need for a test procedure adjustment to 
preserve the level of stringency of the CAFE standards.\216\ EPA is 
committed to doing so in a timely manner to ensure that any change in 
certification fuel will not affect the stringency of future GHG 
emission standards.
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    \215\ See 40 CFR 86.113-94(a).
    \216\ EPCA requires that CAFE tests be determined from the EPA 
test procedures in place as of 1975, or procedures that give 
comparable results. 49 USC 32904(c).
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B. Proposed Model Year 2017-2025 GHG Standards for Light-duty Vehicles, 
Light-duty Trucks, and Medium duty Passenger Vehicles

    EPA is proposing new emissions standards to control greenhouse 
gases (GHGs) from MY 2017 and later light-duty vehicles. EPA is 
proposing new emission standards for carbon dioxide (CO2) on 
a gram per mile (g/mile) basis that will apply to a manufacturer's 
fleet of cars, and a separate standard that will apply to a 
manufacturer's fleet of trucks. CO2 is the primary 
greenhouse gas resulting from the combustion of vehicular fuels, and 
the amount of CO2 emitted is directly correlated to the 
amount of fuel consumed. EPA is proposing to conduct a mid-term 
evaluation of the GHG standards and other requirements for MYs 2022-
2025, as further discussed in Section III.B.3 below.
    EPA is not proposing changes to the CH4 and 
N2O emissions standards, but is proposing revisions to the 
options that manufacturers have in meeting the CH4 and 
N2O standards, and to the timeframe for manufacturers to 
begin measuring N2O emissions. These proposed changes are 
not intended to change the stringency of the CH4 and 
N2O standards, but are aimed at addressing implementation 
concerns regarding the standards.
    The opportunity to earn credits toward the fleet-wide average 
CO2 standards for improvements to air conditioning systems 
remains in place for MY 2017 and later, including improvements to 
address both hydrofluorocarbon (HFC) refrigerant losses (i.e., system 
leakage) and indirect CO2 emissions related to the air 
conditioning efficiency and load on the engine. The CO2 
standards proposed for cars and trucks take into account EPA's 
projection of the average amount of credits expected to be generated 
across the industry. EPA is proposing several revisions to the air 
conditioning credits provisions, as discussed in Section III.C.1.
    The MY 2012-2016 Final Rule established several program elements 
that remain in place, where EPA is not proposing significant changes. 
The proposed standards described below would apply to passenger cars, 
light-duty trucks, and medium-duty passenger vehicles (MDPVs). As an 
overall group, they are referred to in this preamble as light-duty 
vehicles or simply as vehicles. In this preamble section, passenger 
cars may be referred to simply as ``cars'', and light-duty trucks and 
MDPVs as ``light trucks'' or ``trucks.'' \217\
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    \217\ GHG emissions standards would use the same vehicle 
category definitions used for MYs 2012-2016 and as are used in the 
CAFE program.
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    EPA is not proposing changes to the averaging, banking, and trading 
program elements, as discussed in Section III.B.4, with the exception 
of our proposal for a one-time carry-forward of any credits generated 
in MY 2010-2016 to be used anytime through MY2021. The previous 
rulemaking also established provisions for MY 2016 and later FFVs, 
where the emissions levels of these vehicles are based on tailpipe 
emissions performance and the amount of alternative fuel used. These 
provisions remain in place without change.
    Several provisions are being proposed that allow manufacturer's to 
generate credits for use in complying with the standards or that 
provide additional incentives for use of advanced technology. These 
include credits for technology that reduces CO2 emissions 
during off-cycle operation that is not reasonably accounted for by the 
2-cycle tests used for compliance purposes. EPA is proposing various 
changes to this program to streamline its use compared to the MYs 2012-
2016 program. These provisions are discussed in section III.C. In 
addition, EPA is proposing the use of multipliers to provide an 
incentive for the use of EVs, PHEVs, and FCVs, as well as a specified 
gram/mile credit for full size pick-up trucks that meet various 
efficiency performance criteria and/or include hybrid technology at a 
minimum level of production volumes. These provisions are also 
discussed in Section III.C. As discussed in those sections, while these 
additional credit provisions do not change the level of the standards 
proposed for cars and trucks, unlike the provisions for AC credits, 
they all support the reasonableness of the standards proposed for MYs 
2017-2025.
1. What Fleet-wide Emissions Levels Correspond to the CO2 
Standards?
    EPA is proposing standards that are projected to require, on an 
average industry fleet wide basis, 163 grams/mile of CO2 in 
model year 2025. The level of 163 grams/mile CO2 would be 
equivalent on a mpg basis to 54.5 mpg, if this level was achieved 
solely through improvements in fuel efficiency.218 219 For 
passenger cars, the proposed footprint curves call for reducing 
CO2 by 5 percent per year on average from the model year 
2016 passenger car standard through model year 2025. In recognition of 
manufacturers' unique challenges in improving the GHG emissions of 
full-size pickup trucks as we transition from the MY 2016 standards to 
MY 2017 and later, while preserving the utility (e.g., towing and 
payload capabilities) of those vehicles, EPA is proposing a lower 
annual rate of improvement for light-duty trucks in the early years of 
the program. For light-duty trucks, the footprint curves call for 
reducing CO2 by 3.5 percent per year on average from the 
model year 2016 truck standard through model year 2021. EPA is also 
proposing to change the slopes of the CO2-footprint curves 
for light-duty trucks from those in the 2012-2016 rule, in a manner 
that effectively means that the annual rate of improvement for smaller 
light-duty trucks in model years 2017 through 2021 would be higher than 
3.5 percent, and the annual rate of improvement for larger light-duty 
trucks over the same time period would be lower than 3.5 percent to 
account for the unique challenges for improving the GHG of large light 
trucks while maintaining cargo hauling and towing utility. For model 
years 2022 through 2025, EPA is proposing a reduction of CO2 
for light-

[[Page 74977]]

duty trucks of 5 percent per year on average starting from the model 
year 2021 truck standard.
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    \218\ In comparison, the MY 2016 CO2 standard is 
projected to achieve a national fleet-wide average, covering both 
cars and trucks, of 250 g/mile.
    \219\ Real-world CO2 is typically 25 percent higher 
and real-world fuel economy is typically 20 percent lower than the 
CO2 and CAFE values discussed here. The reference to 
CO2 here refers to CO2 equivalent reductions, 
as this level includes some reductions in emissions of greenhouse 
gases other than CO2, from refrigerant leakage, as one 
part of the AC related reductions.
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    EPA's proposed standards include EPA's projection of average 
industry wide CO2-equivalent emission reductions from A/C 
improvements, where the proposed footprint curve is made more stringent 
by an amount equivalent to this projection of A/C credits. This 
projection of A/C credits builds on the projections from MYs 2012-2016, 
with the increases in credits mainly due to the full penetration of low 
GWP alternative refrigerant by MY 2021. The proposed car standards 
would begin with MY 2017, with a generally linear increase in 
stringency from MY 2017 through MY 2025 for cars. The truck standards 
have a more gradual increase for MYs 2017-2020 then more rapidly in MY 
2021. For MYs 2021-2025, the truck standards increase in stringency 
generally in a linear fashion. EPA proposes to continue to have 
separate standards for cars and light trucks, and to have identical 
definitions of cars and trucks as NHTSA, in order to harmonize with 
CAFE standards. The tables in this section below provide overall fleet 
average levels that are projected for both cars and light trucks over 
the phase-in period which is estimated to correspond with the proposed 
standards. The actual fleet-wide average g/mi level that would be 
achieved in any year for cars and trucks will depend on the actual 
production for that year, as well as the use of the various credit and 
averaging, banking, and trading provisions. For example, in any year, 
manufacturers would be able to generate credits from cars and use them 
for compliance with the truck standard, or vice versa. Such transfer of 
credits between cars and trucks is not reflected in the table below. In 
Section III.F, EPA discusses the year-by-year estimate of emissions 
reductions that are projected to be achieved by the standards.
    In general, the proposed schedule of standards acts as a phase-in 
to the MY 2025 standards, and reflects consideration of the appropriate 
lead-time and engineering redesign cycles for each manufacturer to 
implement the requisite emission reductions technology across its 
product line. Note that MY 2025 is the final model year in which the 
standards become more stringent. The MY 2025 CO2 standards 
would remain in place for MY 2025 and later model years, until revised 
by EPA in a future rulemaking. EPA estimates that, on a combined fleet-
wide national basis, the 2025 MY proposed standards would require a 
level of 163 g/mile CO2. The derivation of the 163 g/mile 
estimate is described in Section III.B.2. EPA has estimated the overall 
fleet-wide CO2-equivalent emission (target) levels that 
correspond with the proposed attribute-based standards, based on the 
projections of the composition of each manufacturer's fleet in each 
year of the program. Tables Table III-9 and Table III-10 provide these 
target estimates for each manufacturer.
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    These estimates were aggregated based on projected production 
volumes into the fleet-wide averages for cars, trucks, and the entire 
fleet, shown in Table III-11.\220\ The combined fleet estimates are 
based on the assumption of a fleet mix of cars and trucks that vary 
over the MY 2017-2025 timeframe. This fleet mix distribution can be 
found in Chapter 1 of the join TSD.
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    \220\ Due to rounding during calculations, the estimated fleet-
wide CO2-equivalent levels may vary by plus or minus 1 
gram.

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    As shown in Table III-11, fleet-wide CO2-equivalent 
emission levels for cars under the approach are projected to decrease 
from 213 to 144 grams per mile between MY 2017 and MY 2025. Similarly, 
fleet-wide CO2-equivalent emission levels for trucks are 
projected to decrease from 295 to 203 grams per mile. These numbers do 
not include the effects of other flexibilities and credits in the 
program.\221\ The estimated achieved values can be found in Chapter 3 
of the Regulatory Impact Analysis (RIA).
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    \221\ Nor do they reflect ABT.
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    As noted above, EPA is proposing standards that would result in 
increasingly stringent levels of CO2 control from MY 2017 
though MY 2025. Applying the CO2 footprint curves applicable 
in each model year to the vehicles (and their footprint distributions) 
expected to be sold in each model year produces progressively more 
stringent estimates of fleet-wide CO2 emission targets. The 
standards achieve important CO2 emissions reductions through 
the application of feasible control technology at reasonable cost, 
considering the needed lead time for this program and with proper 
consideration of manufacturer product redesign cycles. EPA has analyzed 
the feasibility of achieving the proposed CO2 standards, 
based on projections of the adoption of technology to reduce emissions 
of CO2, during the normal redesign process for cars and 
trucks, taking into account the effectiveness and cost of the 
technology. The results of the analysis are discussed in detail in 
Section III.D below and in the draft RIA. EPA also presents the overall 
estimated costs and benefits of the car and truck proposed 
CO2 standards in Section III.H. In developing the proposal, 
EPA has evaluated the kinds of technologies that could be utilized by 
the automobile industry, as well as the associated costs for the 
industry and fuel savings for the consumer, the magnitude of the GHG 
and oil reductions that may be achieved, and other factors relevant 
under the CAA.
    With respect to the lead time and cost of incorporating technology 
improvements that reduce GHG emissions, EPA places important weight on 
the fact that the proposed rule provides a long planning horizon to 
achieve the very challenging emissions standards being proposed, and 
provides manufacturers with certainty when planning future products. 
The time-frame and levels for the standards are expected to provide 
manufacturers the time needed to develop and incorporate technology 
that will achieve GHG reductions, and to do this as part of the normal 
vehicle redesign process. Further discussing of lead time, redesigns 
and feasibility can be found in Section III-D and Chapter 3 of the 
joint TSD.
    In the MY 2012-2016 Final Rule, EPA established several provisions 
which will continue to apply for the proposed MY2017-2025 standards. 
Consistent with the requirement of CAA section 202(a)(1) that standards 
be applicable to vehicles ``for their useful life,'' CO2 
vehicle standards would apply for the useful life of the vehicle. Under 
section 202(i) of the Act, which authorized the Tier 2 standards, EPA 
established a useful life period of 10 years or 120,000

[[Page 74982]]

miles, whichever first occurs, for all light-duty vehicles and light-
duty trucks.\222\ This useful life was applied to the MY 2012-2016 GHG 
standards and EPA is not proposing any changes to the useful life for 
MYs 2017-2025. Also, as with MYs 2012-2016, EPA proposes that the in-
use emission standard would be 10% higher for a model than the emission 
levels used for certification and compliance with the fleet average 
that is based on the footprint curves. As with the MY2012-2016 
standards, this will address issues of production variability and test-
to-test variability. The in-use standard is discussed in Section III.E. 
Finally, EPA is not proposing any changes to the test procedures over 
which emissions are measured and weighted to determine compliance with 
the standards. These procedures are the Federal Test Procedure (FTP or 
``city'' test) and the Highway Fuel Economy Test (HFET or ``highway'' 
test).
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    \222\ See 65 FR 6698 (February 10, 2000).
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2. What Are the Proposed CO2 Attribute-based Standards?
    As with the MY 2012-2016 standards, EPA is proposing separate car 
and truck standards, that is, vehicles defined as cars have one set of 
footprint-based curves for MY 2017-2025 and vehicles defined as trucks 
have a different set for MY 2017-2025. In general, for a given 
footprint the CO2 g/mi target for trucks would be less 
stringent than for a car with the same footprint. EPA's approach for 
establishing the footprint curves for model years 2017 and later, 
including changes from the approach used for the MY2012-2016 footprint 
curves, is discussed in Section II.C and Chapter 2 of the joint TSD. 
The curves are described mathematically by a family of piecewise linear 
functions (with respect to vehicle footprint) that gradually and 
continually ramp down from the MY 2016 curve established in the 
previous rule. As Section II.C describes, EPA has modified the curves 
from 2016, particularly for trucks. To make this modification, we 
wanted to ensure that starting from the 2016 curve, there is a gradual 
transition to the new slopes and cut point (out to 74 sq ft from 66 sq 
ft). The transition is also designed to prevent the curve from one year 
from crossing the previous year's curve.
    Written in mathematic notation, the form of the proposed function 
is as follows: \223\
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    \223\ See proposed Regulatory text, which are the official 
coefficients and equation. The information proposed here is a 
summary version.

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    The car curves are largely similar to 2016 curve in slope. By 
contrast, the MY 2017 and later truck curves are steeper relative to 
the MY 2016 curve, but gradually flatten as a result of the 
multiplicative increase of the standards. As a further change from the 
MYs 2012-2016 rule, the truck curve does not reach the ultimate 
cutpoint of 74 sq ft until 2022. The gap between the 2020 curve and the 
2021 curve is indicative of design of the truck standards described 
earlier, where a significant proportion of the increased stringency 
over the first five years occurs between MY 2020 and MY 2021. Finally, 
the gradual flattening of both the car and the trucks curves is 
noticeable. For further discussion of these topics, please see Section 
II.C and Chapter 2 of the joint TSD.

[[Page 74986]]

3. Mid-Term Evaluation
    Given the long time frame at issue in setting standards for MY2022-
2025 light-duty vehicles, and given NHTSA's obligation to conduct a 
separate rulemaking in order to establish final standards for vehicles 
for those model years, EPA and NHTSA will conduct a comprehensive mid-
term evaluation and agency decision-making as described below. Up to 
date information will be developed and compiled for the evaluation, 
through a collaborative, robust and transparent process, including 
public notice and comment. The evaluation will be based on (1) A 
holistic assessment of all of the factors considered by the agencies in 
setting standards, including those set forth in the rule and other 
relevant factors, and (2) the expected impact of those factors on the 
manufacturers' ability to comply, without placing decisive weight on 
any particular factor or projection. The comprehensive evaluation 
process will lead to final agency action by both agencies.
    Consistent with the agencies' commitment to maintaining a single 
national framework for regulation of vehicle emissions and fuel 
economy, the agencies fully expect to conduct the mid-term evaluation 
in close coordination with the California Air Resources Board (CARB). 
Moreover, the agencies fully expect that any adjustments to the 
standards will be made with the participation of CARB and in a manner 
that ensures continued harmonization of state and Federal vehicle 
standards.
    EPA will conduct a mid-term evaluation of the later model year 
light-duty GHG standards (MY2022-2025). The evaluation will determine 
whether those standards are appropriate under section 202(a) of the 
Act. Under the regulations proposed today, EPA would be legally bound 
to make a final decision, by April 1, 2018, on whether the MY 2022-2025 
GHG standards are appropriate under section 202(a), in light of the 
record then before the agency.
    EPA, NHTSA and CARB will jointly prepare a draft Technical 
Assessment Report (TAR) to inform EPA's determination on the 
appropriateness of the GHG standards and to inform NHTSA's rulemaking 
for the CAFE standards for MYs 2022-2025. The TAR will examine the same 
issues and underlying analyses and projections considered in the 
original rulemaking, including technical and other analyses and 
projections relevant to each agency's authority to set standards as 
well as any relevant new issues that may present themselves. There will 
be an opportunity for public comment on the draft TAR, and appropriate 
peer review will be performed of underlying analyses in the TAR. The 
assumptions and modeling underlying the TAR will be available to the 
public, to the extent consistent with law.
    EPA will also seek public comment on whether the standards are 
appropriate under section 202(a), e.g. comments to affirm or change the 
GHG standards (either more or less stringent). The agencies will 
carefully consider comments and information received and respond to 
comments in their respective subsequent final actions.
    EPA and NHTSA will consult and coordinate in developing EPA's 
determination on whether the MY 2022-2025 GHG standards are appropriate 
under section 202(a) and NHTSA's NPRM.
    In making its determination, EPA will evaluate and determine 
whether the MY2022-2025 GHG standards are appropriate under section 
202(a) of the CAA based on a comprehensive, integrated assessment of 
all of the results of the review, as well as any public comments 
received during the evaluation, taken as a whole. The decision making 
required of the Administrator in making that determination is intended 
to be as robust and comprehensive as that in the original setting of 
the MY2017-2025 standards.
    In making this determination, EPA will consider information on a 
range of relevant factors, including but not limited to those listed in 
the proposed rule and below:
    1. Development of powertrain improvements to gasoline and diesel 
powered vehicles.
    2. Impacts on employment, including the auto sector.
    3. Availability and implementation of methods to reduce weight, 
including any impacts on safety.
    4. Actual and projected availability of public and private charging 
infrastructure for electric vehicles, and fueling infrastructure for 
alternative fueled vehicles.
    5. Costs, availability, and consumer acceptance of technologies to 
ensure compliance with the standards, such as vehicle batteries and 
power electronics, mass reduction, and anticipated trends in these 
costs.
    6. Payback periods for any incremental vehicle costs associated 
with meeting the standards.
    7. Costs for gasoline, diesel fuel, and alternative fuels.
    8. Total light-duty vehicle sales and projected fleet mix.
    9. Market penetration across the fleet of fuel efficient 
technologies.
    10. Any other factors that may be deemed relevant to the review.
    If, based on the evaluation, EPA decides that the GHG standards are 
appropriate under section 202(a), then EPA will announce that final 
decision and the basis for EPA's decision. The decision will be final 
agency action which also will be subject to judicial review on its 
merits. EPA will develop an administrative record for that review that 
will be no less robust than that developed for the initial 
determination to establish the standards. In the midterm evaluation, 
EPA will develop a robust record for judicial review that is the same 
kind of record that would be developed and before a court for judicial 
review of the adoption of standards.
    Where EPA decides that the standards are not appropriate, EPA will 
initiate a rulemaking to adopt standards that are appropriate under 
section 202(a), which could result in standards that are either less or 
more stringent. In this rulemaking EPA will evaluate a range of 
alternative standards that are potentially effective and reasonably 
feasible, and the Administrator will propose the alternative that in 
her judgment is the best choice for a standard that is appropriate 
under section 202(a).\224\ If EPA initiates a rulemaking, it will be a 
joint rulemaking with NHTSA. Any final action taken by EPA at the end 
of that rulemaking is also judicially reviewable.
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    \224\ The provisions of CAA section 202(b)(1)(C) are not 
applicable to any revisions of the greenhouse standards adopted in a 
later rulemaking based on the mid-term evaluation. Section 
202(b)(1)(C) refers to EPA's authority to revise ``any standard 
prescribed or previously revised under this subsection,'' and 
indicates that ``[a]ny revised standard'' shall require a reduction 
of emissions from the standard that was previously applicable. These 
provisions apply to standards that are adopted under subsection 
202(b) of the Act and are later revised. These provisions are 
limited by their terms to such standards, and do not otherwise limit 
EPA's general authority under section 202(a) to adopt standards and 
revise them ``from time to time.'' Since the greenhouse gas 
standards are not adopted under subsection 202(b), section 
202(b)(1)(C) does not apply to these standards or any subsequent 
revision of these standards.
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    The MY 2022-2025 GHG standards will remain in effect unless and 
until EPA changes them by rulemaking.
    NHTSA intends to issue conditional standards for MYs 2022-2025 in 
the LDV rulemaking being initiated this fall for MY2017 and later model 
years. The CAFE standards for MYs 2022-2025 will be determined with 
finality in a subsequent, de novo notice and comment rulemaking 
conducted in full compliance with section 32902 of title 49 U.S.C. and 
other applicable law.

[[Page 74987]]

Accordingly, NHTSA's development of its proposal in that later 
rulemaking will include the making of economic and technology analyses 
and estimates that are appropriate for those model years and based on 
then-current information.
    Any rulemaking conducted jointly by the agencies or by NHTSA alone 
will be timed to provide sufficient lead time for industry to make 
whatever changes to their products that the rulemaking analysis deems 
feasible based on the new information available. At the very latest, 
the three agencies will complete the mid-term evaluation process and 
subsequent rulemaking on the standards that may occur in sufficient 
time to promulgate final standards for MYs 2022-2025 with at least 18 
months lead time, but additional lead time may be provided.
    EPA understands that California intends to propose a mid-term 
evaluation in its program that is coordinated with EPA and NHTSA and is 
based on a similar set of factors as outlined in this Appendix A. The 
rules submitted to EPA for a waiver under the CAA will include such a 
mid-term evaluation. EPA understands that California intends to 
continue promoting harmonized state and federal vehicle standards. EPA 
further understands that California's 2017-2025 standards to be 
submitted to EPA for a waiver under the Clean Air Act will deem 
compliance with EPA greenhouse gas emission standards, even if amended 
after 2012, as compliant with California's. Therefore, if EPA revises 
it standards in response to the mid-term evaluation, California may 
need to amend one or more of its 2022-2025 MY standards and would 
submit such amendments to EPA with a request for a waiver, or for 
confirmation that said amendments fall within the scope of an existing 
waiver, as appropriate.
4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    In the MY 2012-2016 rule, EPA adopted credit provisions for credit 
carry-back, credit carry-forward, credit transfers, and credit trading. 
For EPA's purposes, these kinds of provisions are collectively termed 
Averaging, Banking, and Trading (ABT), and have been an important part 
of many mobile source programs under CAA Title II, both for fuels 
programs as well as for engine and vehicle programs.\225\ As in the 
MY2012-2016 program, EPA is proposing basically the same comprehensive 
program for averaging, banking, and trading of credits which together 
will help manufacturers in planning and implementing the orderly phase-
in of emissions control technology in their production, consistent with 
their typical redesign schedules. ABT is important because it can help 
to address many issues of technological feasibility and lead-time, as 
well as considerations of cost. ABT is an integral part of the standard 
setting itself, and is not just an add-on to help reduce costs. In many 
cases, ABT resolves issues of cost or technical feasibility, allowing 
EPA to set a standard that is numerically more stringent. The ABT 
provisions are integral to the fleet averaging approach established in 
the MY 2012-2016 rule. EPA is proposing to change the credit carry-
forward provisions as described below, but the program otherwise would 
remain in place unchanged for model years 2017 and later.
---------------------------------------------------------------------------

    \225\ See 75 FR at 25412-413.
---------------------------------------------------------------------------

    As noted above, the ABT provisions consist primarily of credit 
carry-back, credit carry-forward, credit transfers, and credit trading. 
A manufacturer may have a deficit at the end of a model year after 
averaging across its fleet using credit transfers between cars and 
trucks--that is, a manufacturer's fleet average level may fail to meet 
the required fleet average standard. Credit carry-back refers to using 
credits to offset any deficit in meeting the fleet average standards 
that had accrued in a prior model year. A deficit must be offset within 
3 model years using credit carry-back provisions. After satisfying any 
needs to offset pre-existing debits within a vehicle category, 
remaining credits may be banked, or saved for use in future years. This 
is referred to as credit carry-forward. The EPCA/EISA statutory 
framework for the CAFE program includes a 5-year credit carry-forward 
provision and a 3-year credit carry-back provision. In the MYs 2012-
2016 program, EPA chose to adopt 5-year credit carry-forward and 3-year 
credit carry-back provisions as a reasonable approach that maintained 
consistency between the agencies' provisions. EPA is proposing to 
continue with this approach in this rulemaking. (A further discussion 
of the ABT provisions can be found at 75 FR 25412-14 May 7, 2010).
    Although the credit carry-forward and carry-back provisions would 
generally remain in place for MY 2017 and later, EPA is proposing to 
allow all unused credits generated in MY 2010-2016 to be carried 
forward through MY 2021. This amounts to the normal 5 year carry-
forward for MY 2016 and later credits but provides additional carry-
forward years for credits earned in MYs 2010-2015. Extending the life 
for MY 2010-2015 credits would provide greater flexibility for 
manufacturers in using the credits they have generated. These credits 
would help manufacturers resolve lead-time issues they might face in 
the model years prior to 2021 as they transition from the 2016 
standards to the progressively more stringent standards for 2017 and 
later. It also provides an additional incentive to generate credits 
earlier, for example in MYs 2014 and 2015, because those credits may be 
used through 2021, thereby encouraging the earlier use of additional 
CO2 reducing technology.
    While this provision provides greater flexibility in how 
manufacturers use credits they have generated, it would not change the 
overall CO2 benefits of the National Program, as EPA does 
not expect that any of the credits would have expired as they likely 
would be used or traded to other manufacturers. EPA believes the 
proposed approach provides important additional flexibility in the 
early years of the new MY2017 and later standards. EPA requests 
comments on the proposed approach for carrying over MY 2010-2015 
credits through MY 2021.
    EPA is not proposing to allow MY 2009 early credits to be carried 
forward beyond the normal 5 years due to concerns expressed during the 
2012-2016 rulemaking that there may be the potential for large numbers 
of credits that could be generated in MY 2009 for companies that are 
over-achieving on CAFE and that some of these credits could represent 
windfall credits.\226\ In response to these concerns, EPA placed 
restrictions the use of MY 2009 credits (for example, MY 2009 credits 
may not be traded) and does not believe expanding the use of MY 2009 
credits would be appropriate. Under the MY 2012-2016 early credits 
program, manufacturers have until the end of MY 2011 (reports must be 
submitted by April 2012), when the early credits program ends, to 
submit early credit reports. Therefore, EPA does not yet have 
information on the amount of early MY2009 credits actually generated by 
manufacturers to assess whether or not they could be viewed as 
windfall. Nevertheless, because these concerns continue, EPA is 
proposing not to extend the MY 2009 credit transfers past the existing 
5-years limit.
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    \226\ 75 FR at 25442. Moreover, as pointed out in the earlier 
rulemaking, there can be no legitimate expectation that these 2009 
MY credits could be used as part of a compliance strategy in model 
years after 2014, and thus no reason to carry forward the credits 
past 5 years due to action in reliance by manufacturers.
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    Transferring credits refers to exchanging credits between the two 
averaging sets, passenger cars and trucks, within a manufacturer. For

[[Page 74988]]

example, credits accrued by over-compliance with a manufacturer's car 
fleet average standard could be used to offset debits accrued due to 
that manufacturer not meeting the truck fleet average standard in a 
given year. Finally, accumulated credits may be traded to another 
manufacturer. In EPA's CO2 program, there are no limits on 
the amount of credits that may be transferred or traded.
    The averaging, banking, and trading provisions are generally 
consistent with those included in the CAFE program, with a few notable 
exceptions. As with EPA's approach (except for the proposal discussed 
above for a one-time extended carry-forward of MY2010-2016 credits), 
CAFE allows five year carry-forward of credits and three year carry-
back, per EISA. CAFE transfers of credits across a manufacturer's car 
and truck averaging sets are also allowed, but with limits established 
by EISA on the use of transferred credits. The amount of transferred 
credits that can be used in a year is limited under CAFE, and 
transferred credits may not be used to meet the CAFE minimum domestic 
passenger car standard, also per statute. CAFE allows credit trading, 
but again, traded credits cannot be used to meet the minimum domestic 
passenger car standard.
5. Small Volume Manufacturer Standards
    In adopting the CO2 standards for MY 2012-2016, EPA 
recognized that for very small volume manufacturers, the CO2 
standards adopted for MY 2012-2016 would be extremely challenging and 
potentially infeasible absent credits from other manufacturers. EPA 
therefore deferred small volume manufacturers (SVMs) with annual U.S. 
sales less than 5,000 vehicles from having to meet CO2 
standards until EPA is able to establish appropriate SVM standards. As 
part of establishing eligibility for the exemption, manufacturers must 
make a good faith effort to secure credits from other manufacturers, if 
they are reasonably available, to cover the emissions reductions they 
would have otherwise had to achieve under applicable standards.
    These small volume manufacturers face a greater challenge in 
meeting CO2 standards compared to large manufacturers 
because they only produce a few vehicle models, mostly focusing on high 
performance sports cars and luxury vehicles. These manufacturers have 
limited product lines across which to average emissions, and the few 
models they produce often have very high CO2 levels. As SVMs 
noted in discussions, SVMs only produce one or two vehicle types but 
must compete directly with brands that are part of larger manufacturer 
groups that have more resources available to them. There is often a 
time lag in the availability of technologies from suppliers between 
when the technology is supplied to large manufacturers and when it is 
available to small volume manufacturers. Also, incorporating new 
technologies into vehicle designs costs the same or more for small 
volume manufacturers, yet the costs are spread over significantly 
smaller volumes. Therefore, SVMs typically have longer model life 
cycles in order to recover their investments. SVMs further noted that 
despite constraints facing them, SVMs need to innovate in order to 
differentiate themselves in the market and often lead in incorporating 
technological innovations, particularly lightweight materials.
    In the MY 2012-2016 Final Rule, EPA noted that it intended to 
conduct a follow-on rulemaking to establish appropriate standards for 
these manufacturers. In developing this proposal, the agencies held 
detailed technical discussions with the manufacturers eligible for the 
exemption under the MY 2012-2016 program and reviewed detailed product 
plans of each manufacturer. EPA continues to believe that SVMs would 
face great difficulty meeting the primary CO2 standards and 
that establishing challenging but less stringent SVM standards is 
appropriate given the limited products offering of SVMs. EPA believes 
it is important to establish standards that will require SVMs to 
continue to innovate to reduce emissions and do their ``fair share'' 
under the GHG program. However, selecting a single set of standards 
that would apply to all SVMs is difficult because each manufacturer's 
product lines vary significantly. EPA is concerned that a standard that 
would be appropriate for one manufacturer may not be feasible for 
another, potentially driving them from the domestic market. 
Alternatively, a less stringent standard may only cap emissions for 
some manufacturers, providing little incentive to reduce emissions.
    Based on this, rather than conducting a separate rulemaking, as 
part of this MY 2017-2025 rulemaking EPA is proposing to allow SVMs to 
petition EPA for an alternative CO2 standard for these model 
years. The proposed approach for SVM standards and eligibility 
requirements are described below. EPA is also requesting comments on 
extending eligibility for the proposed SVM standards to very small 
manufacturers that are owned by large manufacturers but are able to 
establish that they are operationally independent.
    EPA considered a variety of approaches and believes a case-by-case 
approach for establishing SVM standards would be appropriate. EPA is 
proposing to allow eligible SVMs the option to petition EPA for 
alternative standards. An SVM utilizing this option would be required 
to submit data and information that the agency would use in addition to 
other available information to establish CO2 standards for 
that specific manufacturer. EPA requests comments on all aspects of the 
proposed approach described in detail below.
a. Overview of Existing Case-by-Case Approaches
    A case-by-case approach for establishing standards for SVMs has 
been adopted by NHTSA for CAFE, CARB in their 2009-2016 GHG program, 
and the European Union (EU) for European CO2 standards. For 
the CAFE program, EPCA allows manufacturers making less than 10,000 
vehicles per year worldwide to petition the agency to have an 
alternative standard set for them.\227\ NHTSA has adopted alternative 
standards for some small volume manufacturers under these CAFE 
provisions and continually reviews applications as they are 
submitted.\228\ Under the CAFE program, petitioners must include 
projections of the most fuel efficient production mix of vehicle 
configurations for a model year and a discussion demonstrating that the 
projections are reasonable. Petitioners must include, among other 
items, annual production data, efforts to comply with applicable fuel 
economy standards, and detailed information on vehicle technologies and 
specifications. The petitioner must explain why they have not pursued 
additional means that would allow them to achieve higher average fuel 
economy. NHTSA publishes a proposed decision in the Federal Register 
and accepts public comments. Petitions may be granted for up to three 
years.
---------------------------------------------------------------------------

    \227\ See 49 U.S.C. 32902(d) and 49 CFR Part 525. Under the CAFE 
program, manufacturers who manufacture less than 10,000 passenger 
cars worldwide annually may petition for an exemption from 
generally-applicable CAFE standards, in which case NHTSA will 
determine what level of CAFE would be maximum feasible for that 
particular manufacturer if the agency determines that doing so is 
appropriate.
    \228\ Alternative CAFE standards are provided in 49 CFR 531.5 
(e).
---------------------------------------------------------------------------

    For the California GHG standards for MYs 2009-2016, CARB 
established a process that would start at the beginning of MY2013, 
where small volume manufacturers would identify all MY

[[Page 74989]]

2012 vehicle models certified by large volume manufacturers that are 
comparable to the SVM's planned MY 2016 vehicle models.\229\ The 
comparison vehicles were to be selected on the basis of horsepower and 
power to weight ratio. The SVM was required to demonstrate the 
appropriateness of the comparison models selected. CARB would then 
provide a target CO2 value based on the emissions 
performance of the comparison vehicles to the SVM for each of their 
vehicle models to be used to calculate a fleet average standard for 
each test group for MY2016 and later. Since CARB provides that 
compliance with the National Program for MYs 2012-2016 will be deemed 
compliance with the CARB program, it has not taken action to set unique 
SVM standards, but its program nevertheless was a useful model to 
consider.
---------------------------------------------------------------------------

    \229\ 13 CCR 1961.1(D).
---------------------------------------------------------------------------

    The EU process allows small manufacturers to apply for a derogation 
from the primary CO2 emissions reduction targets.\230\ 
Applications for 2012 were required to be submitted by manufacturers no 
later than March 31, 2011, and the Commission will assess the 
application within 9 months of the receipt of a complete application. 
Applications for derogations for 2012 have been submitted by several 
manufacturers and non confidential versions are currently available to 
the public.\231\ In the EU process, the SVM proposes an alternative 
emissions target supported by detailed information on the applicant's 
economic activities and technological potential to reduce 
CO2 emissions. The application also requires information on 
individual vehicle models such as mass and specific CO2 
emissions of the vehicles, and information on the characteristics of 
the market for the types of vehicles manufactured. The proposed 
alternative emissions standards may be the same numeric standard for 
multiple years or a declining standard, and the alternative standards 
may be established for a maximum period of five years. Where the 
European Commission is satisfied that the specific emissions target 
proposed by the manufacturer is consistent with its reduction 
potential, including the economic and technological potential to reduce 
its specific emissions of CO2, and taking into account the 
characteristics of the market for the type of car manufactured, the 
Commission will grant a derogation to the manufacturer.
---------------------------------------------------------------------------

    \230\ Article 11 of Regulation (EC) No 443/2009 and EU No 63/
2011. See also ``Frequently asked questions on application for 
derogation pursuant to Aticle 11 of Regulation (EC) 443/2009.''
    \231\ http://ec.europa.eu/clima/documentation/transport/vehicles/cars_en.htm.
---------------------------------------------------------------------------

b. EPA's Proposed Framework for Case-by-Case SVM Standards
    EPA proposes that SVMs will become subject to the GHG program 
beginning with MY 2017. Starting in MY 2017, an SVM would be required 
to meet the primary program standards unless EPA establishes 
alternative standards for the manufacturer. EPA proposes that eligible 
manufacturers seeking alternative standards must petition EPA for 
alternative standards by July 30, 2013, providing the information 
described below. If EPA finds that the application is incomplete, EPA 
would notify the manufacturer and provide an additional 30 days for the 
manufacturer to provide all necessary information. EPA would then 
publish a notice in the Federal Register of the manufacturer's petition 
and recommendations for an alternative standard, as well as EPA's 
proposed alternative standard. Non confidential business information 
portions of the petition would be available to the public for review in 
the docket. After a period for public comment, EPA would make a 
determination on an alternative standard for the manufacturer and 
publish final notice of the determination in the Federal Register for 
the general public as well as the applicant. EPA expects the process to 
establish the alternative standard to take about 12 months once a 
complete application is submitted by the manufacturer.
    EPA proposes that manufacturers would petition for alternative 
standards for up to 5 model years (i.e., MYs 2017--2021) as long as 
sufficient information is available on which to base the alternative 
standards (see application discussion below). This initial round of 
establishing case-by-case standards would be followed by one or more 
additional rounds until standards are established for the SVM for all 
model years up to and including MY 2025. For the later round(s) of 
standard setting, EPA proposes that the SVM must submit their petition 
36 months prior to the start of the first model year for which the 
standards would apply in order to provide sufficient time for EPA to 
evaluate and set alternative standards (e.g., January 1, 2018 for MY 
2022). The 36 month requirement would not apply to new market entrants, 
discussed in section III.C.5.e below. The subsequent case-by-case 
standard setting would follow the same notice and comment process as 
outlined above.
    EPA also proposes that if EPA does not establish SVM standards for 
a manufacturer at least 12 months prior to the start of the model year 
in cases where the manufacturer provided all required information by 
the established deadline, the manufacturer may request an extension of 
the alternative standards currently in place, on a model year by model 
year basis. This would provide assurance to manufacturers that they 
would have at least 12 months lead time to prepare for the upcoming 
model year.
    EPA requests comments on allowing SVMs to comply early with the MY 
2017 SVM standards established for them. Manufacturers may want to 
certify to the MY 2017 standards in earlier model years (e.g., MY 2015 
or MY 2016). Under the MY 2012-2016 program, SVMs are eligible for an 
exemption from the standards as long as they have made a good faith 
effort to purchase credits. By certifying to the SVM alternative 
standard early in lieu of this exemption, manufacturers could avoid 
having to seek out credits to purchase in order to maintain this 
exemption. EPA would not allow certification for vehicles already 
produced by the manufacturer, so the applicability of this provision 
would be limited due to the timing of establishing the SVM standards. 
Manufacturers interested in the possibility of early compliance would 
be able to apply for SVM standards earlier than the required July 30, 
2013 deadline proposed above. An early compliance option also may be 
beneficial for new manufacturers entering the market that qualify as 
SVMs.
c. Petition Data and Information Requirements
    As described in detail in section I.D.2, EPA establishes motor 
vehicle standards under section 202(a) that are based on technological 
feasibility, and considering lead time, safety, costs and other impacts 
on consumers, and other factors such as energy impacts associated with 
use of the technology. EPA proposes to require that SVMs submit the 
data and information listed below which EPA would use, in addition to 
other relevant information, in determining an appropriate alternative 
standard for the SVM. EPA would also consider data and information 
provided by commenters during the comment process in determining the 
final level of the SVM's standards. As noted above, other case-by-case 
standard setting approaches have been adopted by NHTSA, the European 
Union, and CARB and EPA has considered the data requirements of those 
programs in developing the proposed data and information requirements 
detailed below. EPA

[[Page 74990]]

requests comments on the following proposed data requirements.
    EPA proposes that SVMs would provide the following information as 
part of their petition for SVM standards:
Vehicle Model and Fleet Information
     MYs that the application covers--up to 5 MYs. Sufficient 
information must be provided to establish alternative standards for 
each year
     Vehicle models and sales projections by model for each MY
     Description of models (vehicle type, mass, power, 
footprint, expected pricing)
     Description of powertrain
     Production cycle for each model including new vehicle 
model introductions
     Vehicle footprint based targets and projected fleet 
average standard under primary program by model year
Technology Evaluation
     CO2 reduction technologies employed or expected 
to be on the vehicle model(s) for the applicable model years, including 
effectiveness and cost information

--Including A/C and potential off-cycle technologies

     Evaluation of similar vehicles to those produced by the 
petitioning SVM and certified in MYs 2012-2013 (or latest 2 MYs for 
later applications) for each vehicle model including CO2 
results and any A/C credits generated by the models
--Similar vehicles must be selected based on vehicle type, horsepower, 
mass, power-to-weight, vehicle footprint, vehicle price range and other 
relevant factors as explained by the SVM

     Discussion of CO2 reducing technologies 
employed on vehicles offered by the manufacturer outside of the U.S. 
market but not in the U.S., including why those vehicles/technologies 
are not being introduced in the U.S. market as a way of reducing 
overall fleet CO2 levels
     Evaluation of technologies projected by EPA as 
technologies likely to be used to meet the MYs 2012-2016 and MYs 2017-
2025 standards that are not projected to be fully utilized by the 
petitioning SVM and explanation of reasons for not using the 
technologies, including relevant cost information \232\
---------------------------------------------------------------------------

    \232\ See 75 FR 25444 (Section III.D) for MY 2012-2016 
technologies and Section III.D below for discussion of projected MY 
2017-2025 technologies.
---------------------------------------------------------------------------

SVM Projected Standards
     The most stringent CO2 level estimated by the 
SVM to be feasible and appropriate by model and MY and the 
technological and other basis for the estimate
     For each MY, projection of the lowest fleet average 
CO2 production mix of vehicle models and discussion 
demonstrating that these projections are reasonable
     A copy of any applications submitted to NHTSA for MY 2012 
and later alternative standards
Eligibility
     U.S. sales for previous three model years and projections 
for production volumes over the time period covered by the application
     Complete information on ownership structure in cases where 
SVM has ties to other manufacturers with U.S. vehicle sales
    EPA proposes to weigh several factors in determining what 
CO2 standards are appropriate for a given SVMs fleet. These 
factors would include the level of technology applied to date by the 
manufacturer, the manufacturer's projections for the application of 
additional technology, CO2 reducing technologies being 
employed by other manufacturers including on vehicles with which the 
SVM competes directly and the CO2 levels of those vehicles, 
and the technological feasibility and reasonableness of employing 
additional technology not projected by the manufacturer in the time-
frame for which standards are being established. EPA would also 
consider opportunities to generate A/C and off-cycle credits that are 
available to the manufacturer. Lead time would be a key consideration 
both for the initial years of the SVM standard, where lead time would 
be shorter due to the timing of the notice and comment process to 
establish the standards, and for the later years where manufacturers 
would have more time to achieve additional CO2 reductions.
d. SVM Credits Provisions
    As discussed in Section III.B.4, EPA's program includes a variety 
of credit averaging, banking, and trading provisions. EPA proposes that 
these provisions would generally apply to SVM standards as well, with 
the exception that SVMs would not be allowed to trade credits to other 
manufacturers. Because SVMs would be meeting alternative, less 
stringent standards compared to manufacturers in the primary program, 
EPA proposes that SVM would not be allowed to trade (i.e., sell or 
otherwise provide) CO2 credits that the SVM generates 
against the SVM standards to other manufacturers. SVMs would be able to 
use credits purchased from other manufacturers generated in the primary 
program. Although EPA does not expect significant credits to be 
generated by SVMs due to the manufacturer-specific standard setting 
approach being proposed, SVMs would be able to generate and use credits 
internally, under the credit carry-forward and carry-back provisions. 
Under a case-by-case approach, EPA would not view such credits as 
windfall credits and not allowing internal banking could stifle 
potential innovative approaches for SVMs. SVMs would also be able to 
transfer credits between the car and light trucks categories.
e. SVM Standards Eligibility
i. Current SVMs
    The MY 2012-2016 rulemaking limited eligibility for the SVM 
deferment to manufacturers in the U.S. market in MY 2008 or MY 2009 
with U.S. sales of less than 5,000 vehicles per year. After initial 
eligibility has been established, the SVM remains eligible for the 
exemption if the rolling average of three consecutive model years of 
sales remains below 5,000 vehicles. Manufacturers going over the 5,000 
vehicle rolling average limit would have two additional model years to 
transition to having to meet applicable CO2 standards. Based 
on these eligibility criteria, there are three companies that qualify 
currently as SVMs under the MY2012-2016 standards: Aston Martin, Lotus, 
and McLaren.\233\ These manufacturers make up much less than one 
percent of total U.S. vehicles sales, so the environmental impact of 
these alternative standards would be very small. EPA continues to 
believe that the 5,000 vehicle cut-point and rolling three year average 
approach is appropriate and proposes to retain it as a primary 
criterion for SVMs to remain eligible for SVM standards. The 5,000 
vehicle threshold allows for some sales growth by SVMs, as the SVMs in 
the market today typically have annual sales of below 2,000 vehicles. 
However, EPA wants to ensure that standards for as few vehicles as 
possible are included in the SVM standards to minimize the 
environmental impact, and therefore believes it is appropriate that 
manufacturers with U.S. sales growing to above 5,000 vehicles per year 
be required to comply with the primary standards. Manufacturers with 
unusually strong sales in a given year would still likely remain 
eligible, based on the three year rolling average. However, if a 
manufacturer expands in

[[Page 74991]]

the U.S. market on a permanent basis such that they consistently sell 
more than 5,000 vehicles per year, they would likely increase their 
rolling average to above 5,000 and no longer be eligible. EPA believes 
a manufacturer will be able to consider these provisions, along with 
other factors, in its planning to significantly expand in the U.S. 
market. As discussed below, EPA is not proposing to continue to tie 
eligibility to having been in the market in MY 2008 or MY 2009, or any 
other year and is instead proposing eligibility criteria for new SVMs 
newly entering the U.S. market.
---------------------------------------------------------------------------

    \233\ Under the MY 2012-2016 program, manufacturers must also 
make a good faith effort to purchase CO2 credits in order 
to maintain eligibility for SVM status.
---------------------------------------------------------------------------

ii. New SVMs (New Entrants to the U.S. Market)
    As noted above, the SVM deferment under the MY 2012-2016 program 
included a requirement that a manufacturer had to have been in the U.S. 
vehicle market in MY 2008 or MY 2009. This provision ensured that a 
known universe of manufacturers would be eligible for the exemption in 
the short term and manufacturers would not be driven from the market as 
EPA proceeded to develop appropriate SVM standards. EPA is not 
proposing to include such a provision for the SVM standards eligibility 
criteria for MY 2017-2025. EPA believes that with SVM standards in 
place, tying eligibility to being in the market in a prior year is no 
longer necessary because SVMs will be required to achieve appropriate 
levels of emissions control. Also, it could serve as a potential market 
barrier to competition by hindering new SVMs from entering the U.S. 
market.
    For new market entrants, EPA proposes that a manufacturer seeking 
an alternative standard for MY2017-2025 must apply and that standards 
would be established through the process described above. The new SVM 
would not be able to certify their vehicles until the standards are 
established and therefore EPA would expect the manufacturer to submit 
an application as early as possible but at least 30 months prior to 
when they expect to begin producing vehicles in order to provide enough 
time for EPA to evaluate standards and to follow the notice and comment 
process to establish the standards and for certification. In addition 
to the information and data described below, EPA proposes to require 
new market entrants to provide evidence that the company intends to 
enter the U.S. market within the time frame of the MY2017-2025 SVM 
standards. Such evidence would include documentation of work underway 
to establish a dealer network, appropriate financing and marketing 
plans, and evidence the company is working to meet other federal 
vehicle requirements such as other EPA emissions standards and NHTSA 
vehicle safety standards. EPA is concerned about the administrative 
burden that could be created for the agency by companies with no firm 
plans to enter the U.S. market submitting applications in order to see 
what standard might be established for them. This information, in 
addition to a complete application with the information and data 
outlined above, would provide evidence of the seriousness of the 
applicant. As part of this review, EPA reserves the right to not 
undertake its SVM standards development process for companies that do 
not exhibit a serious and documented effort to enter the U.S. market.
    EPA remains concerned about the potential for gaming by a 
manufacturer that sells less than 5,000 vehicles in the first year, but 
with plans for significantly larger sales volumes in the following 
years. EPA believes that it would not be appropriate to establish SVM 
standards for a new market entrant that plans a steep ramp-up in U.S. 
vehicle sales. Therefore, EPA proposes that for new entrants, U.S. 
vehicle sales must remain below 5,000 vehicles for the first three 
years in the market. After the initial three years, the manufacturer 
must maintain a three year rolling average below 5,000 vehicles (e.g., 
the rolling average of years 2, 3 and 4, must be below 5,000 vehicles). 
If a new market entrant does not comply with these provisions for the 
first five years in the market, vehicles sold above the 5,000 vehicle 
threshold would be found not to be covered by the alternative 
standards, and EPA expects the fleet average is therefore not in 
compliance with the standards and would be subject to enforcement 
action and also, the manufacturer would lose eligibility for the SVM 
standards until it has reestablished three consecutive years of sales 
below 5,000 vehicles.
    By not tying the 5,000 vehicle eligibility criteria to a particular 
model year, it would be possible for a manufacturer already in the 
market to drop below the 5,000 vehicle threshold in a future year and 
attempt to establish eligibility. EPA proposes to treat such 
manufacturers as new entrants to the market for purposes of determining 
eligibility for SVM standards. However, the requirements to demonstrate 
that the manufacturer intends to enter the U.S. market obviously would 
not be relevant in this case, and therefore would not apply.
iii. Aggregation Requirements and an Operational Independence Concept
    In determining eligibility for the MY 2012-2016 exemption, sales 
volumes must be aggregated across manufacturers according to the 
provisions of 40 CFR 86.1838-01(b)(3), which requires the sales of 
different firms to be aggregated in various situations, including where 
one firm has a 10% or more equity ownership of another firm, or where a 
third party has a 10% or more equity ownership of two or more firms. 
These are the same aggregation requirements used in other EPA small 
volume manufacturer provisions, such as those for other light-duty 
emissions standards.\234\ EPA proposes to retain these aggregation 
provisions as part of the eligibility criteria for the SVM standards 
for MYs 2017-2025. Manufacturers also retain, no matter their size, the 
option to meet the full set of GHG requirements on their own, and do 
not necessarily need to demonstrate compliance as part of a corporate 
parent company fleet. However, as discussed below, EPA is seeking 
comments on allowing manufacturers that otherwise would not be eligible 
for the SVM standards due to these aggregation provisions, to 
demonstrate to the Administrator that they are ``operationally 
independent'' based on the criteria described below. Under such a 
concept, if the Administrator were to determine that a manufacturer was 
operationally independent, that manufacturer would be eligible for SVM 
standards.
---------------------------------------------------------------------------

    \234\ For other programs, the eligibility cut point for SVM 
flexibility is 15,000 vehicles rather than 5,000 vehicles.
---------------------------------------------------------------------------

    During the 2012-2016 rule comment period, EPA received comments 
from Ferrari requesting that EPA allow a manufacturer to apply to EPA 
to establish SVM status based on the independence of its research, 
development, testing, design, and manufacturing from another firm that 
has ownership interest in that manufacturer. Ferrari is majority owned 
by Fiat and would be aggregated with other Fiat brands, including 
Chrysler, Maserati, and Alfa Romeo, for purposes of determining 
eligibility for SVM standards; therefore Ferrari does not meet the 
eligibility criteria for SVM status. However, Ferrari believes that it 
would qualify for such an ``operational independence'' concept, if such 
an option were provided. In the MY 2012-2016 Final Rule, EPA noted that 
it would further consider the issue of operational independence and 
seek public comments on this concept (see 75 FR 25420). In this 
proposal, EPA is

[[Page 74992]]

requesting comment on the concept of operational independence. 
Specifically, we are seeking comment on expanding eligibility for the 
SVM standards to manufacturers who would have U.S. annual sales of less 
than 5,000 vehicles and based on a demonstration that they are 
``operationally independent'' of other companies. Under such an 
approach, EPA would be amending the limitation for SVM corporate 
aggregation provisions such that a manufacturer that is more than 10 
percent owned by a large manufacturer would be allowed to qualify for 
SVM standards on the basis of its own sales, because it operates its 
research, design, production, and manufacturing independently from the 
parent company.
    In seeking public comment on this concept of operational 
independence, EPA particularly is interested in comments regarding the 
degree to which this concept could unnecessarily open up the SVM 
standards to several smaller manufacturers that are integrated into 
large companies--smaller companies that may be capable of and planning 
to meet the CO2 standards as part of the larger 
manufacturer's fleet. EPA also seeks comment on the concern that 
manufacturers could change their corporate structure to take advantage 
of such provisions (that is, gaming). EPA is therefore requesting 
comment on approaches, described below, to narrowly define the 
operational independence criteria to ensure that qualifying companies 
are truly independent and to avoid gaming to meet the criteria. EPA 
also requests comments on the possible implications of this approach on 
market competition, which we believe should be fully explored through 
the public comment process. EPA acknowledges that regardless of the 
criteria for operational independence, a small manufacturer under the 
umbrella of a large manufacturer is fundamentally different from other 
SVMs because the large manufacturer has several options under the GHG 
program to bring the smaller subsidiary into compliance, including the 
use of averaging or credit transfer provisions, purchasing credits from 
another manufacturer, or providing technical and financial assistance 
to the smaller subsidiary. Truly independent SVMs do not have the 
potential access to these options, with the exception of buying credits 
from another manufacturer. EPA requests comments on the need for and 
appropriateness of allowing companies to apply for less stringent SVM 
standards based on sales that are not aggregated with other companies 
because of operational independence.
    EPA is considering and requesting comments on the operational 
independence criteria listed below. These criteria are meant to 
establish that a company, though owned by another manufacturer, does 
not benefit operationally or financially from this relationship, and 
should therefore be considered independent for purposes of calculating 
the sales volume for the SVM program. Manufacturers would need to 
demonstrate compliance with all of these criteria in order to be found 
to be operationally independent. By ``related manufacturers'' below, 
EPA means all manufacturers that would be aggregated together under the 
10 percent ownership provisions contained in EPA's current small volume 
manufacturer definition (i.e., the parent company and all subsidiaries 
where there is 10 percent or greater ownership).
    EPA would need to determine, based on the information provided by 
the manufacturer in its application, that the manufacturer currently 
meets the following criteria and has met them for at least 24 months 
preceding the application submittal:
    1. No financial or other support of economic value was provided by 
related manufacturers for purposes of design, parts procurement, R&D 
and production facilities and operation. Any other transactions with 
related manufacturers must be conducted under normal commercial 
arrangements like those conducted with other parties. Any such 
transactions shall be at competitive pricing rates to the manufacturer.
    2. Maintains separate and independent research and development, 
testing, and production facilities.
    3. Does not use any vehicle powertrains or platforms developed or 
produced by related manufacturers.
    4. Patents are not held jointly with related manufacturers.
    5. Maintains separate business administration, legal, purchasing, 
sales, and marketing departments; maintains autonomous decision making 
on commercial matters.
    6. Overlap of Board of Directors is limited to 25 percent with no 
sharing of top operational management, including president, chief 
executive officer (CEO), chief financial officer (CFO), and chief 
operating officer (COO), and provided that no individual overlapping 
director or combination of overlapping directors exercises exclusive 
management control over either or both companies.
    7. Parts or components supply agreements between related companies 
must be established through open market process and to the extent that 
manufacturer sells parts/components to non-related auto manufacturers, 
it does so through the open market at competitive pricing.
    In addition to the criteria listed above, EPA also requests 
comments on the following programmatic elements and framework. EPA 
requests comments on requiring the manufacturer applying for 
operational independence to provide an attest engagement from an 
independent auditor verifying the accuracy of the information provided 
in the application.\235\ EPA foresees possible difficulty verifying the 
information in the application, especially if the company is located 
overseas. The principal purpose of the attest engagement would be to 
provide an independent review and verification of the information 
provided. EPA also would require that the application be signed by the 
company president or CEO. After EPA approval, the manufacturer would be 
required to report within 60 days any material changes to the 
information provided in the application. A manufacturer would lose 
eligibility automatically after the material change occurs. However, 
EPA would confirm that the manufacturer no longer meets one or more of 
the criteria and thus is no longer considered operationally 
independent, and would notify the manufacturer. EPA would provide two 
model years lead time for the manufacturer to transition to the primary 
program. For example, if the manufacturer lost eligibility sometime in 
calendar year 2018 (based on when the material change occurs), the 
manufacturer would need to meet primary program standards in MY 2021.
---------------------------------------------------------------------------

    \235\ EPA has required attest engagements as part of its 
Reformulated Fuels program. See 40 CFR Sec.  80.1164 and Sec.  
80.1464.
---------------------------------------------------------------------------

    In addition, EPA requests comments on whether or not a manufacturer 
losing eligibility should be able to re-establish itself as 
operationally independent in a future year and over what period of time 
they would need to meet the criteria to again be eligible. EPA requests 
comments on, for example, whether or not a manufacturer meeting the 
criteria for three to five consecutive years should be allowed to again 
be considered operationally independent.
6. Nitrous Oxide, Methane, and CO2-equivalent Approaches
a. Standards and Flexibility
    For light-duty vehicles, as part of the MY 2012-2016 rulemaking, 
EPA finalized standards for nitrous oxide (N2O) of 0.010 g/
mile and methane (CH4) of 0.030 g/mile for MY 2012 and

[[Page 74993]]

later vehicles. 75 FR at 25421-24. The light-duty vehicle standards for 
N2O and CH4 were established to cap emissions, 
where current levels are generally significantly below the cap. The cap 
would prevent future emissions increases, and were generally not 
expected to result in the application of new technologies or 
significant costs for the manufacturers for current vehicle designs. 
EPA also finalized an alternative CO2 equivalent standard 
option, which manufacturers may choose to use in lieu of complying with 
the N2O and CH4 cap standards. The 
CO2-equivalent standard option allows manufacturers to fold 
all 2-cycle weighted N2O and CH4 emissions, on a 
CO2-equivalent basis, along with CO2 into their 
CO2 emissions fleet average compliance level.\236\ The 
applicable CO2 fleet average standard is not adjusted to 
account for the addition of N2O and CH4. For 
flexible fueled vehicles, the N2O and CH4 
standards must be met on both fuels (e.g., both gasoline and E-85).
---------------------------------------------------------------------------

    \236\ The global warming potentials (GWP) used in this rule are 
consistent with the 100-year time frame values in the 2007 
Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment 
Report (AR4). At this time, the 100-year GWP values from the 1996 
IPCC Second Assessment Report (SAR) are used in the official U.S. 
greenhouse gas inventory submission to the United Nations Framework 
Convention on Climate Change (per the reporting requirements under 
that international convention, which were last updated in 2006) . 
N2O has a 100-year GWP of 298 and CH4 has a 
100-year GWP of 25 according to the 2007 IPCC AR4.
---------------------------------------------------------------------------

    After the light-duty standards were finalized, manufacturers raised 
concerns that for a few of the vehicle models in their existing fleet 
they were having difficulty meeting the N2O and/or 
CH4 standards, in the near-term. In such cases, 
manufacturers would still have the option of complying using the 
CO2 equivalent alternative. On a CO2 equivalent 
basis, folding in all N2O and CH4 emissions could 
add up to 3-4 g/mile to a manufacturer's overall fleet-average 
CO2 emissions level because the alternative standard must be 
used for the entire fleet, not just for the problem vehicles. The 3-4 
g/mile assumes all emissions are actually at the level of the cap. See 
75 FR at 74211. This could be especially challenging in the early years 
of the program for manufacturers with little compliance margin because 
there is very limited lead time to develop strategies to address these 
additional emissions. Some manufacturers believe that the current 
CO2-equivalent fleet-wide option ``penalizes'' them by 
requiring them to fold in both CH4 and N2O 
emissions for their entire fleet, even if they have difficulty meeting 
the cap on only one vehicle model.
    In response to these concerns, as part of the heavy-duty GHG 
rulemaking, EPA requested comment on and finalized provisions allowing 
manufacturers to use CO2 credits, on a CO2-
equivalent basis, to meet the light-duty N2O and 
CH4 standards.\237\ Manufacturers have the option of using 
CO2 credits to meet N2O and CH4 
standards on a test group basis as needed for MYs 2012-2016. In their 
public comments to the proposal in the heavy-duty package, 
manufacturers urged EPA to extend this flexibility indefinitely, as 
they believed this option was more advantageous than the 
CO2-equivalent fleet wide option (discussed previously) 
already provided in the light-duty program, because it allowed 
manufacturers to address N2O and CH4 separately 
and on a test group basis, rather than across their whole fleet. 
Further, manufacturers believed that since this option is allowed under 
the heavy-duty standards, allowing it indefinitely in the light-duty 
program would make the light- and heavy-duty programs more consistent. 
In the Final Rule for Heavy-Duty Vehicles, EPA noted that it would 
consider this issue further in the context of new standards for MYs 
2017-2025 in the planned future light-duty vehicle rulemaking. 76 FR at 
57194.
---------------------------------------------------------------------------

    \237\ See 76 FR at 57193-94.
---------------------------------------------------------------------------

    EPA has further considered this issue and is proposing to allow the 
additional option of using CO2 credits to meet the light-
duty vehicle N2O and CH4 standards to extend for 
all model years beyond MY 2016. EPA understands manufacturer concerns 
that if they use the CO2-equivalent option for meeting the 
GHG standards, they would be penalized by having to incorporate all 
N2O and CH4 emissions across their entire fleet 
into their CO2-equivalent fleet emissions level 
determination. EPA continues to believe that allowing CO2 
credits to meet CH4 and N2O standards on a 
CO2-equivalent basis is a reasonable approach to provide 
additional flexibility without diminishing overall GHG emissions 
reductions.
    EPA is also requesting comments on establishing an adjustment to 
the CO2-equivalent standard for manufacturers selecting the 
CO2-equivalent option established in the MY 2012-2016 
rulemaking. Manufacturers would continue to be required to fold in all 
of their CH4 and N2O emissions, along with 
CO2, into their CO2-equivalent levels. They would 
then apply the agency-established adjustment factor to the 
CO2-equivalent standard. For example, if the adjustment for 
CH4 and N2O combined was 1 to 2 g/mile 
CO2-equivalent (taking into account the GWP of 
N2O and CH4), manufacturers would determine their 
CO2 fleet emissions standard and add the 1 to 2 g/mile 
adjustment factor to it to determine their CO2-equivalent 
standard. The adjustment factor would slightly increase the amount of 
allowed fleet average CO2-equivalent emissions for the 
manufacturer's fleet. The purpose of this adjustment would be so 
manufacturers do not have to offset the typical N2O and 
CH4 vehicle emissions, while holding manufacturers 
responsible for higher than average N2O and CH4 
emissions levels.
    At this time, EPA is not proposing an adjustment value due to a 
current lack of N2O test data on which to base the 
adjustment for N2O. As discussed below, EPA and 
manufacturers are currently evaluating N2O measurement 
equipment and insufficient data is available at this time on which to 
base an appropriate adjustment. For CH4, manufacturers 
currently provide data during certification, and based on current 
vehicle data a fleet-wide adjustment for CH4 in the range of 
0.14 g/mile appears to be appropriate.\238\ EPA requests comments on 
this concept and requests city and highway cycle N2O data on 
current Tier 2 vehicles which could help serve as the basis for the 
adjustment.
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    \238\ Average city/highway cycle CH4 emissions based 
on MY2010-2012 gasoline vehicles certification data is about 0.0056 
g/mile; multiplied by the methane GWP of 25, this level would result 
in a 0.14 g/mile adjustment. See memo to the docket, ``Analysis of 
Methane (CH4) Certification Data for Model Year 2010-2012 
Vehicles.''
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    EPA continues to believe that it would not be appropriate to base 
the adjustment on the cap standards because such an approach could have 
the effect of undermining the stringency of the CO2 
standards, as many vehicles would likely have CH4 and 
N2O levels much lower than the cap standards. EPA believes 
that if an appropriate adjustment could be developed and applied, it 
would help alleviate manufacturers' concerns discussed above and make 
the CO2-equivalent approach a more viable option.
b. N2O Measurement
    For the N2O standard, EPA finalized provisions in the MY 
2012-2016 rule allowing manufacturers to support an application for a 
certificate by supplying a compliance statement based on good 
engineering judgment, in lieu of N2O test data, through MY 
2014. EPA required N2O testing starting with MY 2015. See 75 
FR at 25423. This flexibility provided manufacturers with lead time 
needed to make necessary

[[Page 74994]]

facilities changes and install N2O measurement equipment.
    Since the final rule, manufacturers have raised concerns that the 
lead-time provided to begin N2O measurement is not 
sufficient, as their research and evaluation of N2O 
measurement instrumentation has involved a greater level of effort than 
previously expected. There are several analyzers available today for 
the measurement of N2O. Over the last year since the MY 
2012-2016 standards were finalized, EPA has continued to evaluate 
instruments for N2O measurement and now believes instruments 
not evaluated during the 2012-2016 rulemaking have the potential to 
provide more precise emissions measurement and believe it would be 
prudent to provide manufacturers with additional time to evaluate, 
procure, and install equipment in their test cells.\239\ Therefore, EPA 
believes that the manufacturer's concerns about the need for additional 
lead-time have merit, and is proposing to extend the ability for 
manufacturers to use compliance statements based on good engineering 
judgment in lieu of test data through MY 2016. Beginning in MY 2017, 
manufacturers would be required to measure N2O emissions to 
verify compliance with the standard. This approach, if finalized, will 
provide the manufacturers with two additional years of lead-time to 
evaluate, procure, and install N2O measurement systems 
throughout their certification laboratories.
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    \239\ ``Data from the evaluation of instruments that measure 
Nitrous Oxide (N2O),'' Memorandum from Chris Laroo to 
Docket EPA-HQ-OAR-2010-0799, October 31, 2011.
---------------------------------------------------------------------------

7. Small Entity Exemption
    In the MY 2012-2016 rule, EPA exempted entities from the GHG 
emissions standard, if the entity met the Small Business Administration 
(SBA) size criteria of a small business as described in 13 CFR 
121.201.\240\ This includes both U.S.-based and foreign small entities 
in three distinct categories of businesses for light-duty vehicles: 
small manufacturers, independent commercial importers (ICIs), and 
alternative fuel vehicle converters. EPA is proposing to continue this 
exemption for the MY 2017-2025 standards. EPA will instead consider 
appropriate GHG standards for these entities as part of a future 
regulatory action.
---------------------------------------------------------------------------

    \240\ See final regulations at 40 CFR 86.1801-12(j).
---------------------------------------------------------------------------

    EPA has identified about 21 entities that fit the Small Business 
Administration (SBA) size criterion of a small business. EPA estimates 
there currently are approximately four small manufacturers including 
three electric vehicle small manufacturers that have recently entered 
the market, eight ICIs, and nine alternative fuel vehicle converters in 
the light-duty vehicle market. EPA estimates that these small entities 
comprise less than 0.1 percent of the total light-duty vehicle sales in 
the U.S., and therefore the exemption will have a negligible impact on 
the GHG emissions reductions from the standards. Further detail 
regarding EPA's assessment of small businesses is provided in 
Regulatory Flexibility Act Section III.J.3.
    At least one small business manufacturer, Fisker Automotive, in 
discussions with EPA, has suggested that small businesses should have 
the option of voluntarily opting-in to the GHG standards. This 
manufacturer sells electric vehicles, and sees a potential market for 
selling credits to other manufacturers. EPA believes that there could 
be several benefits to this approach, as it would allow small 
businesses an opportunity to generate revenue to offset their 
technology investments and encourage commercialization of the 
innovative technology, and it would benefit any manufacturer seeking 
those credits to meet their compliance obligations. EPA is proposing to 
allow small businesses to waive their small entity exemption and opt-in 
to the GHG standards. Upon opting in, the manufacturer would be subject 
to all of the requirements that would otherwise be applicable. This 
would allow small entity manufacturers to earn CO2 credits 
under the program, which may be an especially attractive option for the 
new electric vehicle manufacturers entering the market. EPA proposes to 
make the opt-in available starting in MY 2014, as the MY 2012, and 
potentially the MY 2013, certification process will have already 
occurred by the time this rulemaking is finalized. EPA is not proposing 
to retroactively certify vehicles that have already been produced. 
However, EPA proposes that manufacturers certifying to the GHG 
standards for MY 2014 would be eligible to generate credits for 
vehicles sold in MY 2012 and MY 2013 based on the number of vehicles 
sold and the manufacturer's footprint-based standard under the primary 
program that would have otherwise applied to the manufacturer if it 
were a large manufacturer. This approach would be similar to that used 
by EPA for early credits generated in MYs 2009-2011, where 
manufacturers did not certify vehicles to CO2 standards in 
those years but were able to generate credits. See 75 FR at 25441. EPA 
believes it is appropriate to provide these credits to small entities, 
as the credits would be available to large manufacturers producing 
similar vehicles, and the credits further encourage manufacturers of 
advanced technology vehicles such as EVs. In addition to benefiting 
these small businesses, this option also has the potential to expand 
the pool of credits available to be purchased by other manufacturers. 
EPA proposes that manufacturers waiving their small entity exemption 
would be required to meet all aspects of the GHG standards and program 
requirements across their entire product line. EPA requests comments on 
the small business provisions described above.
8. Additional Leadtime Issues
    The 2012-2016 GHG vehicle standards include Temporary Leadtime 
Allowance Alternative Standards (TLAAS) which provide alternative 
standards to certain intermediate sized manufacturers (those with U.S. 
sales between 5,000 and 400,000 during model year 2009) to accommodate 
two situations: manufacturers which traditionally paid fines instead of 
complying with CAFE standards, and limited line manufacturers facing 
special compliance challenges due to less flexibility afforded by 
averaging, banking and trading. See 75 FR at 25414-416. EPA is not 
proposing to continue this program for MYs 2017-2025. First, the 
allowance was premised on the need to provide adequate lead time, given 
the (at the time the rule was finalized) rapidly approaching MY 2012 
deadline, and given that manufacturers were transitioning from a CAFE 
regime that allows fine-paying, to a Clean Air Act regime that does 
not. That concern is no longer applicable, given that there is ample 
lead time before the MY 2017 standards. More important, the Temporary 
Lead Time Allowance was just that--temporary--and EPA provided it to 
allow manufacturers to transition to full compliance in later model 
years. See 75 FR at 25416. EPA is thus not proposing to continue this 
provision.
    In the context of the increasing stringency of standards in the 
latter phase of the program (e.g., MY 2022-2025), one manufacturer 
suggested that EPA should consider providing limited line, intermediate 
volume manufacturers additional time to phase into the standards. The 
concern raised is that such limited line manufacturers face unique 
challenges securing competitive supplier contracts for new 
technologies, and have fewer vehicle lines to allocate the necessary 
upfront investment and risk inherent with new technology introduction. 
This

[[Page 74995]]

manufacturer believes that as the standards become increasingly 
stringent in future years requiring the investment in new or advanced 
technologies, intermediate volume limited line manufacturers may have 
to pay a premium to gain access to these technologies which would put 
them at a competitive disadvantage. EPA seeks comment on this issue, 
and whether there is a need to provide some type of additional leadtime 
for intermediate volume limited line manufacturers to meet the latter 
year standards.
    In the context of the increasing stringency of standards starting 
in MY 2017, as discussed, EPA is not proposing a continuation of the 
TLAAS. TLAAS was available to firms with a wide range of U.S. sales 
volumes (between 5,000 and 400,000 in MY 2009). One company with U.S. 
sales on the order of 25,000 vehicles per year has indicated that it 
believes that the CO2 standards in today's proposal for MY 
2017-2025 would present significant technical challenges for their 
company, due to the relatively small volume of products it sells in the 
U.S., limited ability to average across their limited line fleet, and 
the performance-oriented nature of its vehicles. This firm indicated 
that absent access several years in advance to CO2 credits 
that it could purchase from other firms, this firm would need to 
significantly change the types of products they currently market in the 
U.S. beginning in model year 2017, even if it adds substantial 
CO2 reducing technology to its vehicles. EPA requests 
comment on the potential need to include additional flexibilities for 
companies with U.S. vehicle sales on the order of 25,000 units per 
year, and what types of additional flexibilities would be appropriate. 
Potential flexibilities could include an extension of the TLAAS program 
for lower volume companies, or a one-to-three year delay in the 
applicable model year standard (e.g., the proposed MY 2017 standards 
could be delayed to begin in MY 2018, MY 2019, or MY 2020). Commenters 
suggesting that additional flexibilities may be needed are encouraged 
to provide EPA with data supporting their suggested flexibilities.
9. Police and Emergency Vehicle Exemption From CO2 Standards
    Under EPCA, manufacturers are allowed to exclude police and other 
emergency vehicles from their CAFE fleet and all manufacturers that 
produce emergency vehicles have historically done so. EPA received 
comments in the MY 2012-2016 rulemaking that these vehicles should be 
exempt from the GHG emissions standards and EPA committed to further 
consider the issue in a future rulemaking.\241\ After further 
consideration of this issue, EPA proposes to exempt police and other 
emergency vehicles from the CO2 standards starting in MY 
2012.\242\ EPA believes it is appropriate to provide an exemption for 
these vehicles because of the unique features of vehicles designed 
specifically for law enforcement and emergency response purposes, which 
have the effect of raising their GHG emissions, as well as for purposes 
of harmonization with the CAFE program. EPA proposes to exempt vehicles 
that are excluded under EPCA and NHTSA regulations which define 
emergency vehicle as ``a motor vehicle manufactured primarily for use 
as an ambulance or combination ambulance-hearse or for use by the 
United States Government or a State or local government for law 
enforcement, or for other emergency uses as prescribed by regulation by 
the Secretary of Transportation.'' \243\
---------------------------------------------------------------------------

    \241\ 75 FR 25409.
    \242\ Manufacturers would exclude police and emergency vehicles 
from fleet average calculations (both for determining fleet 
compliance levels and fleet standards) starting in MY 2012. Because 
this would have the effect of making the fleet standards easier to 
meet for manufacturers, EPA does not believe there would be lead 
time issues associated with the exemption, even though it would take 
effect well into MY 2012.
    \243\ 49 U.S.C. 32902(e).
---------------------------------------------------------------------------

    The unique features of these vehicles result in significant added 
weight including: heavy-duty suspensions, stabilizer bars, heavy-duty/
dual batteries, heavy-duty engine cooling systems, heavier glass, 
bullet-proof side panels, and high strength sub-frame. Police pursuit 
vehicles are often equipped with specialty steel rims and increased 
rolling resistance tires designed for high speeds, and unique engine 
and transmission calibrations to allow high-power, high-speed chases. 
Police and emergency vehicles also have features that tend to reduce 
aerodynamics, such as emergency lights, increased ground clearance, and 
heavy-duty front suspensions.
    EPA is concerned that manufacturers may not be able to sufficiently 
reduce the emissions from these vehicles, and would be faced with a 
difficult choice of compromising necessary vehicle features or dropping 
vehicles from their fleets, as they may not have credits under the 
fleet averaging provisions necessary to cover the excess emissions from 
these vehicles as standards become more stringent. Without the 
exemption, there could be situations where a manufacturer is more 
challenged in meeting the GHG standards simply due to the inclusion of 
these higher emitting emergency vehicles. Technical feasibility issues 
go beyond those of other high-performance vehicles and there is a clear 
public need for law enforcement and emergency vehicles that meet these 
performance characteristics as these vehicles must continue to be made 
available in the market. MY 2012-2016 standards, as well as MY 2017 and 
later standards would be fully harmonized with CAFE regarding the 
treatment of these vehicles. EPA requests comments on its proposal to 
exempt emergency vehicles from the GHG standards.
10. Test Procedures
    EPA is considering revising the procedures for measuring fuel 
economy and calculating average fuel economy for the CAFE program, 
effective beginning in MY 2017, to account for three impacts on fuel 
economy not currently included in these procedures--increases in fuel 
economy because of increases in efficiency of the air conditioner; 
increases in fuel economy because of technology improvements that 
achieve ``off-cycle'' benefits; and incentives for use of certain 
hybrid technologies in full size pickup trucks, and for the use of 
other technologies that help those vehicles exceed their targets, in 
the form of increased values assigned for fuel economy. As discussed in 
section IV of this proposal, NHTSA would take these changes into 
account in determining the maximum feasible fuel economy standard, to 
the extent practicable. In this section, EPA discusses the legal 
framework for considering these changes, and the mechanisms by which 
these changes could be implemented. EPA invites comment on all aspects 
of this concept, and plans to adopt this approach in the final rule if 
it determines the changes are appropriate after consideration of all 
comments on these issues.
    These changes would be the same as program elements that are part 
of EPA's greenhouse gas performance standards, discussed in section 
III.B.1 and 2, above. EPA is considering adopting these changes for A/C 
efficiency and off-cycle technology because they are based on 
technology improvements that affect real world fuel economy, and the 
incentives for light-duty trucks will promote greater use of hybrid 
technology to improve fuel economy in these vehicles. In addition, 
adoption of these changes would lead to greater coordination between 
the greenhouse gas program under the CAA and the fuel economy program 
under EPCA. As discussed below, these three elements would be 
implemented in the same

[[Page 74996]]

manner as in the EPA's greenhouse gas program--a vehicle manufacturer 
would have the option to generate these fuel economy values for vehicle 
models that meet the criteria for these ``credits,'' and to use these 
values in calculating their fleet average fuel economy.
a. Legal Framework
    EPCA provides that:

    (c) Testing and calculation procedures. The Administrator [of 
EPA] shall measure fuel economy for each model and calculate average 
fuel economy for a manufacturer under testing and calculation 
procedures prescribed by the Administrator. However * * *, the 
Administrator shall use the same procedures for passenger 
automobiles the Administrator used for model year 1975 * * *, or 
procedures that give comparable results. 49 U.S.C. 32904(c)

    Thus, EPA is charged with developing and adopting the procedures 
used to measure fuel economy for vehicle models and for calculating 
average fuel economy across a manufacturer's fleet. While this 
provision provides broad discretion to EPA, it contains an important 
limitation for the measurement and calculation procedures applicable to 
passenger automobiles. For passenger automobiles, EPA has to use the 
same procedures used for model year 1975 automobiles, or procedures 
that give comparable results.\244\ This limitation does not apply to 
vehicles that are not passenger automobiles. The legislative history 
explains that:
---------------------------------------------------------------------------

    \244\ For purposes of this discussion, EPA need not determine 
whether the changes relating to A/C efficiency, off-cycle, and 
light-duty trucks involve changes to procedures that measure fuel 
economy or procedures for calculating a manufacturer's average fuel 
economy. The same provisions apply irrespective of which procedure 
is at issue. This discussion generally refers to procedures for 
measuring fuel economy for purposes of convenience, but the same 
analysis applies whether a measurement or calculation procedure is 
involved.

    Compliance by a manufacturer with applicable average fuel 
economy standards is to be determined in accordance with test 
procedures established by the EPA Administrator. Test procedures so 
established would be the procedures utilized by the EPA 
Administrator for model year 1975, or procedures which yield 
comparable results. The words ``or procedures which yield comparable 
results'' are intended to give EPA wide latitude in modifying the 
1975 test procedures to achieve procedures that are more accurate or 
easier to administer, so long as the modified procedure does not 
have the effect of substantially changing the average fuel economy 
standards. H.R. Rep. No. 94-340, at 91-92 (1975).\245\
---------------------------------------------------------------------------

    \245\ Unlike the House Bill, the Senate bill did not restrict 
EPA's discretion to adopt or revise test procedures. Senate Bill 
1883, section 503(6). However, the Senate Report noted that:
    The fuel economy improvement goals set in section 504 are based 
upon the representative driving cycles used by the Environmental 
Protection Agency to determine automobile fuel economies for model 
year 1975. In the event that these driving cycles are changed in the 
future, it is the intent of this legislation that the numerical 
miles per gallon values of the fuel economy standards be revised to 
reflect a stringency (in terms of percentage-improvement from the 
baseline) that is the same as the bill requires in terms of the 
present test procedures. S. Rep. No. 94-179, at 19 (1975).
    In Conference, the House version of the bill was adopted, which 
contained the restriction on EPA's authority.
---------------------------------------------------------------------------

    EPA measures fuel economy for the CAFE program using two different 
test procedures--the Federal Test Procedure (FTP) and the Highway Fuel 
Economy Test (HFET). These procedures originated in the early 1970's, 
and were intended to generally represent city and highway driving, 
respectively. These two tests are commonly referred to as the ``2-
cycle'' test procedures for CAFE. The FTP is also used for measuring 
compliance with CAA emissions standards for vehicle exhaust. EPA has 
made various changes to the city and highway fuel economy tests over 
the years. These have ranged from changes to dynamometers and other 
mechanical elements of testing, changes in test fuel properties, 
changes in testing conditions, to changes made in the 1990s when EPA 
adopted additional test procedures for exhaust emissions testing, 
called the Supplemental Federal Test Procedures (SFTP).
    When EPA has made changes to the FTP or HFET, we have evaluated 
whether it is appropriate to provide for an adjustment to the measured 
fuel economy results, to comply with the EPCA requirement for passenger 
cars that the test procedures produce results comparable to the 1975 
test procedures. These adjustments are typically referred to as a CAFE 
or fuel economy test procedure adjustment or adjustment factor. In 1985 
EPA evaluated various test procedure changes made since 1975, and 
applied fuel economy adjustment factors to account for several of the 
test procedure changes that reduced the measured fuel economy, 
producing a significant CAFE impact for vehicle manufacturers. 50 FR 
27172 (July 1, 1985). EPA defined this significant CAFE impact as any 
change or group of changes that has at least a one tenth of a mile per 
gallon impact on CAFE results. Id. at 27173. EPA also concluded in this 
proceeding that no adjustments would be provided for changes that 
removed the manufacturer's ability to take advantage of flexibilities 
in the test procedure and derive increases in measured fuel economy 
values which were not the result of design improvements or marketing 
shifts, and which would not result in any improvement in real world 
fuel economy. EPA likewise concluded that test procedure changes that 
provided manufacturers with an improved ability to achieve increases in 
measured fuel economy based on real world fuel economy improvements 
also would not warrant a CAFE adjustment. Id. at 27172, 27174, 27183. 
EPA adopted retroactive adjustments that had the effect of increasing 
measured fuel economy (to offset test procedure changes that reduced 
the measured fuel economy level) but declined to apply retroactive 
adjustments that reduced fuel economy.
    The DC Circuit reviewed two of EPA's decisions on CAFE test 
procedure adjustments. Center for Auto Safety et al. v. Thomas, 806 
F.2d 1071 (1986). First, the Court rejected EPA's decision to apply 
only positive retroactive adjustments, as the appropriateness of an 
adjustment did not depend on whether it increased or decreased measured 
fuel economy results. Second, the Court upheld EPA's decision to not 
apply any adjustment for the change in the test setting for road load 
power. The 1975 test procedure provided a default setting for road load 
power, as well as an optional, alternative method that allowed a 
manufacturer to develop an alternative road load power setting. The 
road load power setting affected the amount of work that the engine had 
to perform during the test, hence it affected the amount of fuel 
consumed during the test and the measured fuel economy. EPA changed the 
test procedure by replacing the alternative method in the 1975 
procedure with a new alternative coast down procedure. Both the 
original and the replacement alternative procedures were designed to 
allow manufacturers to obtain the benefit of vehicle changes, such as 
changes in aerodynamic design, that improved real world fuel economy by 
reducing the amount of work that the engine needed to perform to move 
the vehicle. The Center for Auto Safety (CAS) argued that EPA was 
required to provide a test procedure adjustment for the new alternative 
coast down procedure as it increased measured fuel economy compared to 
the values measured for the 1975 fleet. In 1975, almost no 
manufacturers made use of the then available alternative method, while 
in later years many manufacturers made use of the option once it was 
changed to the coast down procedure. CAS argued this amounted to a 
change in test procedure that did not achieve comparable results, and 
therefore

[[Page 74997]]

required a test procedure adjustment. CAS did not contest that the 
coast down method and the prior alternative method achieved comparable 
results.
    The DC Circuit rejected CAS' arguments, stating that:

    The critical fact is that a procedure that credited reductions 
in a vehicle's road load power requirements achieved through 
improved aerodynamic design was available for MY1975 testing, and 
those manufacturers, however few in number, that found it 
advantageous to do so, employed that procedure. The manifold intake 
procedure subsequently became obsolete for other reasons, but its 
basic function, to measure real improvements in fuel economy through 
more aerodynamically efficient designs, lived on in the form of the 
coast down technique for measuring those aerodynamic improvements. 
We credit the EPA's finding that increases in measured fuel economy 
because of the lower road load settings obtainable under the coast 
down method, were increases ``likely to be observed on the road,'' 
and were not ``unrepresentative artifact[s] of the dynamometer test 
procedure.'' Such real improvements are exactly what Congress meant 
to measure when it afforded the EPA flexibility to change testing 
and calculating procedures. We agree with the EPA that no 
retroactive adjustment need be made on account of the coast down 
technique. Center for Auto Safety et al v. EPA, 806 F.2d 1071, 1077 
(DC Cir. 1986)

    Some years later, in 1996, EPA adopted a variety of test procedure 
changes as part of updating the emissions test procedures to better 
reflect real world operation and conditions. 61 FR 54852 (October 22, 
1996). EPA adopted new test procedures to supplement the FTP, as well 
as modifications to the FTP itself. For example, EPA adopted a new 
supplemental test procedure specifically to address the impact of air 
conditioner use on exhaust emissions. Since this new test directly 
addressed the impact of A/C use on emissions, EPA removed the specified 
A/C horsepower adjustment that had been in the FTP since 1975. Id. at 
54864, 54873. Later EPA determined that there was no need for CAFE 
adjustments for the overall set of test procedures changes to the FTP, 
as the net effect of the changes was no significant change in CAFE 
results.
    As evidenced by this regulatory history, EPA's traditional approach 
is to consider the impact of potential test procedure changes on CAFE 
results for passenger automobiles and determine if a CAFE adjustment 
factor is warranted to meet the requirement that the test procedure 
produce results comparable to the 1975 test procedure. This involves 
evaluating the magnitude of the impact on measured fuel economy 
results. It also involves evaluating whether the change in measured 
fuel economy reflects real word fuel economy impacts from changes in 
technology or design, or whether it is an artifact of the test 
procedure or test procedure flexibilities such that the change in 
measured fuel economy does not reflect a real world fuel economy 
impact.
    In this case, allowing credits for improvements in air conditioner 
efficiency and off-cycle efficiency for passenger cars would lead to an 
increase (i.e., improvement) in the fuel economy results for the 
vehicle model. The impact on fuel economy and CAFE results clearly 
could be greater than one tenth of a mile per gallon (the level that 
EPA has previously indicated as having a substantial impact). The 
increase in fuel economy results would reflect real world improvements 
in fuel economy and not changes that are just artifacts of the test 
procedure or changes that come from closing a loophole or removing a 
flexibility in the current test procedure. However, these changes in 
procedure would not have the ``critical fact'' that the CAS Court 
relied upon--the existence of a 1975 test provision that was designed 
to account for the same kind of fuel economy improvements from changes 
in A/C or off-cycle efficiency. Under EPA's traditional approach, these 
changes would appear to have a significant impact on CAFE results, 
would reflect real world changes in fuel economy, but would not have a 
comparable precedent in the 1975 test procedure addressing the impact 
of these technology changes on fuel economy. EPA's traditional approach 
would be expected to lead to a CAFE adjustment factor for passenger 
cars to account for the impact of these changes.
    However, EPA is considering whether a change in approach is 
appropriate based on the existence of similar EPA provisions for the 
greenhouse gas emissions procedures and standards. In the past, EPA has 
determined whether a CAFE adjustment factor for passenger cars would be 
appropriate in a context where manufacturers are subject to a CAFE 
standard under EPCA and there is no parallel greenhouse gas standard 
under the CAA. That is not the case here, as MY2017-2025 passenger cars 
will be subject to both CAFE and greenhouse gas standards. As such, EPA 
is considering whether it is appropriate to consider the impact of a 
CAFE procedure change in this broader context standard.
    The term ``comparable results'' is not defined in section 32904(c), 
and the legislative history indicates that it is intended to address 
changes in procedure that result in a substantial change in the average 
fuel economy standard. As explained above, EPA has considered a change 
of one-tenth of a mile per gallon as having a substantial impact, based 
in part on the one tenth of a mile per gallon rounding convention in 
the statute for CAFE calculations. 48 FR 56526, 56528 fn.14 (December 
21, 1983). A change in the procedure that changes fuel economy results 
to this or a larger degree has the effect of changing the stringency of 
the CAFE standard, either making it more or less stringent. A change in 
stringency of the standard changes the burden on the manufacturers, as 
well as the fuel savings and other benefits to society expected from 
the standard. A CAFE adjustment factor is designed to account for these 
impacts.
    Here, however, there is a companion EPA standard for greenhouse gas 
emissions. In this case, the changes would have an impact on the fuel 
economy results and therefore the stringency of the CAFE standard, but 
would not appear to have a real world impact on the burden placed on 
the manufacturers, as the provisions would be the same as provisions in 
EPA's greenhouse gas standards. Similarly it would not appear to have a 
real world impact on the fuel savings and other benefits of the 
National Program which would remain identical. If that is the case, 
then it would appear reasonable to interpret section 32904(c) in these 
circumstances as not restricting these changes in procedure for 
passenger automobiles. The fuel economy results would be considered 
``comparable results'' to the 1975 procedure as there would not be a 
substantial impact on real world CAFE stringency and benefits, given 
the changes in procedure are the same as provisions in EPA's companion 
greenhouse gas procedures and standards. EPA invites comment on this 
approach to interpreting section 32904(c), as well as the view that 
this would not have a substantial impact on either the burden on 
manufacturers or the benefits of the National Program.
    EPA is also considering an alternative interpretation. Under this 
interpretation, the reference to the 1975 procedures in section 
32904(c) would be viewed as a historic reference point, and not a 
codification of any specific procedures or fuel economy improvement 
technologies. The change in procedure would be considered within EPA's 
broad discretion to prescribe reasonable testing and calculation 
procedures, as these changes reflect real world improvements in design 
and accompanying real world improvements in fuel economy. The changes 
in procedure would reflect real world fuel

[[Page 74998]]

economy improvements and increase harmonization with EPA's greenhouse 
gas program. Since the changes in procedure have an impact on fuel 
economy results and could have an impact on the stringency of the CAFE 
standard, EPA could consider two different approaches to offsetting the 
change in stringency.
    In one approach EPA could maintain the stringency of the 2-cycle 
(FTP and HFET) CAFE standard by adopting a corresponding adjustment 
factor to the test results, ensuring that the stringency of the CAFE 
standard was not substantially changed by the change in procedure. This 
would be the traditional approach EPA has followed. Another approach 
would be for NHTSA to maintain the stringency of the 2-cycle CAFE 
standard by increasing that standard's stringency to offset any 
reduction in stringency associated with changes that increase fuel 
economy values. The effect of this adjustment to the standard would be 
to maintain at comparable levels the amount of CAFE to be achieved 
using technology whose effects on fuel economy are accounted for as 
measured under the 1975 test procedures. The effect of the adjustment 
to the standard would also typically be an additional amount of CAFE 
that would have to be achieved, for example by technology whose effects 
on fuel economy are not accounted for under the 1975 test procedures. 
Under this interpretation, this would maintain the level of stringency 
of the 2-cycle CAFE standard that would be adopted for passenger cars 
absent the changes in procedure. As with the interpretation discussed 
above, this alternative interpretation would be a major change from 
EPA's past interpretation and practice. In this joint rulemaking the 
alternative interpretation would apply to changes in procedure that are 
the same as the companion EPA greenhouse gas program. However, that 
would not be an important element in this alternative interpretation, 
which would apply irrespective of the similarity with EPA's greenhouse 
gas procedures and standards. EPA invites comment on this alternative 
interpretation.
    The discussion above focuses on the procedures for passenger cars, 
as section 32904(c) only limits changes to the CAFE test and 
calculation procedures for these automobiles. There is no such 
limitation on the procedures for light-trucks. The credit provisions 
for improvements in air conditioner efficiency and off-cycle 
performance would apply to light-trucks as well. In addition, the 
limitation in section 32904(c) does not apply to the provisions for 
credits for use of hybrids in light-trucks, if certain criteria are 
met, as these provisions apply to light-trucks and not passenger 
automobiles.
b. Implementation of This Approach
    As discussed in section IV, NHTSA would take these changes in 
procedure into account in setting the applicable CAFE standards for 
passenger cars and light-trucks, to the extent practicable. As in EPA's 
greenhouse gas program, the allowance of AC credits for cars and trucks 
results in a more stringent CAFE standard than otherwise would apply 
(although in the CAFE program the AC credits would only be for AC 
efficiency improvements, since refrigerant improvements do not impact 
fuel economy). The allowance of off-cycle credits has been considered 
in setting the CAFE standards for passenger car and light-trucks and 
credits for hybrid use in light pick-up trucks has not been expressly 
considered in setting the CAFE standards for light-trucks, because the 
agencies did not believe that it was possible to quantify accurately 
the extent to which manufacturers would rely on those credits, but if 
more accurate quantification were possible, NHTSA would consider 
incorporating those incentives into its stringency determination.
    EPA further discusses the criteria and test procedures for 
determining AC credits, off-cycle technology credits, and hybrid/
performance-based credits for full size pickup trucks in Section III.C 
below.

C. Additional Manufacturer Compliance Flexibilities

1. Air Conditioning Related Credits
    A/C is virtually standard equipment in new cars and trucks today. 
Over 95% of the new cars and light trucks in the United States are 
equipped with A/C systems. Given the large number of vehicles with A/C 
in use in today's light duty vehicle fleet, their impact on the amount 
of energy consumed and on the amount of refrigerant leakage that occurs 
due to their use is significant.
    EPA proposes that manufacturers be able to comply with their 
fleetwide average CO2 standards described above by 
generating and using credits for improved (A/C) systems. Because such 
improved A/C technologies tend to be relatively inexpensive compared to 
other GHG-reducing technologies, EPA expects that most manufacturers 
would choose to generate and use such A/C compliance credits as a part 
of their compliance demonstrations. For this reason, EPA has 
incorporated the projected costs of compliance with A/C related 
emission reductions into the overall cost analysis for the program. As 
discussed in section II.F, and III.B.10, EPA, in coordination with 
NHTSA, is also proposing that manufacturers be able to include fuel 
consumption reductions resulting from the use of A/C efficiency 
improvements in their CAFE compliance calculations. Manufacturers would 
generate ``fuel consumption improvement values'' essentially equivalent 
to EPA CO2 credits, for use in the CAFE program. The 
proposed changes to the CAFE program to incorporate A/C efficiency 
improvements are discussed below in section III.C.1.b.
    As in the 2012-2016 final rule, EPA is structuring the A/C 
provisions as optional credits for achieving compliance, not as 
separate standards. That is, unlike standards for N2O and 
CH4, there are no separate GHG standards related to AC 
related emissions. Instead, EPA provides manufacturers the option to 
generate A/C GHG emission reductions that could be used as part of 
their CO2 fleet average compliance demonstrations. As in the 
2012-2016 final rule, EPA also included projections of A/C credit 
generation in determining the appropriate level of the proposed 
standards.\246\
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    \246\ See Section II.F above and Section IV below for more 
information on the use of such credits in the CAFE program.
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    In the time since the analyses supporting the 2012-2016 FRM were 
completed, EPA has re-assessed its estimates of overall A/C emissions 
and the fraction of those emissions that might be controlled by 
technologies that are or will be available to manufacturers.\247\ As 
discussed in more detail in Chapter 5 of the Joint TSD (see Section 
5.1.3.2), the revised estimates remain very similar to those of the 
earlier rule. This includes the leakage of refrigerant during the 
vehicle's useful life, as well as the subsequent leakage associated 
with maintenance and servicing, and with disposal at the end of the 
vehicle's life (also called ``direct emissions''). The refrigerant 
universally used today is HFC-134a with a global warming potential 
(GWP) of 1,430.\248\ Together these leakage emissions are equivalent to 
CO2 emissions of 13.8 g/

[[Page 74999]]

mi for cars and 17.2 g/mi for trucks. (Due to the high GWP of HFC-134a, 
a small amount of leakage of the refrigerant has a much greater global 
warming impact than a similar amount of emissions of CO2 or 
other mobile source GHGs.) EPA also estimates that A/C efficiency-
related emissions (also called ``indirect'' A/C emissions), account for 
CO2-equivalent emissions of 11.9 g/mi for cars and 17.1 g/mi 
for trucks.\249\ Chapter 5 of the Joint TSD (see Section 5.1.3.2) 
discusses the derivation of these estimates.
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    \247\ The A/C-related emission inventories presented in this 
paragraph are discussed in Chapter 4 of the Draft RIA.
    \248\ The global warming potentials (GWP) used in this rule are 
consistent with the 100-year time frame values in the 2007 
Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment 
Report (AR4). At this time, the 1996 IPCC Second Assessment Report 
(SAR) 100-year GWP values are used in the official U.S. greenhouse 
gas inventory submission to the United Nations Framework Convention 
on Climate Change (per the reporting requirements under that 
international convention, which were last updated in 2006).
    \249\ Indirect emissions are additional CO2 emitted 
due to the load of the A/C system on the engine.
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    Achieving GHG reductions in the most cost-effective ways is a 
primary goal of the program, and EPA believes that allowing 
manufacturers to comply with the proposed standards by using credits 
generated from incorporating A/C GHG-reducing technologies is a key 
factor in meeting that goal.\250\ EPA accounts for projected reductions 
from A/C related credits in developing the standards (curve targets), 
and includes these emission reductions in estimating the achieved 
benefits of the program. See Section II.D above.
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    \250\ The recent GHG standards for medium and heavy duty 
vehicles included separate standards for A/C leakage, rather than a 
credit based approach. EPA did so because the quantity of these 
leakage emissions is small relative to CO2 emissions from 
driving and moving freight, so that a credit does not create 
sufficient incentive to adopt leakage controls. 76 FR at 57118; 75 
FR at 74211. EPA also did not adopt standards to control A/C leakage 
from vocational vehicles, and did not adopt standards to control 
indirect emissions from any medium or heavy duty vehicle for reasons 
explained at 75 FR 74211 and 74212.
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    Manufacturers can make very feasible improvements to their A/C 
systems to reduce leakage and increase efficiency. Manufacturers can 
reduce A/C leakage emissions by using components that tend to limit or 
eliminate refrigerant leakage. Also, manufacturers can significantly 
reduce the global warming impact of leakage emissions by adopting 
systems that use an alternative, low-GWP refrigerant, acceptable under 
EPA's SNAP program, as discussed below, especially if systems are also 
designed to minimize leakage.\251\ Manufacturers can also increase the 
overall efficiency of the A/C system and thus reduce A/C-related 
CO2 emissions. This is because the A/C system contributes to 
increased CO2 emissions through the additional work required 
to operate the compressor, fans, and blowers. This additional work 
typically is provided through the engine's crankshaft, and delivered 
via belt drive to the alternator (which provides electric energy for 
powering the fans and blowers) and the A/C compressor (which 
pressurizes the refrigerant during A/C operation). The additional fuel 
used to supply the power through the crankshaft necessary to operate 
the A/C system is converted into CO2 by the engine during 
combustion. This incremental CO2 produced from A/C operation 
can thus be reduced by increasing the overall efficiency of the 
vehicle's A/C system, which in turn will reduce the additional load on 
the engine from A/C operation.
---------------------------------------------------------------------------

    \251\ Refrigerant emissions during service, maintenance, repair, 
and disposal are also addressed by the CAA Title VI stratospheric 
ozone program, as described below.
---------------------------------------------------------------------------

    As with the earlier GHG rule, EPA is proposing two separate credit 
approaches to address leakage reductions and efficiency improvements 
independently. A leakage reduction credit would take into account the 
various technologies that could be used to reduce the GHG impact of 
refrigerant leakage, including the use of an alternative refrigerant 
with a lower GWP. An efficiency improvement credit would account for 
the various types of hardware and control of that hardware available to 
increase the A/C system efficiency. To generate credits toward 
compliance with the fleet average CO2 standard, 
manufacturers would be required to attest to the durability of the 
leakage reduction and the efficiency improvement technologies over the 
full useful life of the vehicle.
    EPA believes that both reducing A/C system leakage and increasing 
A/C efficiency would be highly cost-effective and technologically 
feasible for light-duty vehicles in the 2017-2025 timeframe. EPA 
proposes to maintain much of the existing framework for quantifying, 
generating, and using A/C Leakage Credits and Efficiency Credits. EPA 
expects that most manufacturers would choose to use these A/C credit 
provisions, although some may choose not to do so. Consistent with the 
2012-2016 final rule, the proposed standard reflects this projected 
widespread penetration of A/C control technology.
    The following table summarizes the maximum credits the EPA proposes 
to make available in the overall A/C program.

[[Page 75000]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.068

    The next table shows the credits on a model year basis that EPA 
projects that manufacturers will generate on average (starting with the 
ending values from the 2012-2016 final rule). In the 2012-2016 rule, 
the total average car and total average truck credits accounted for the 
difference between the GHG and CAFE standards.

[[Page 75001]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.069

    The year-on-year progression of credits was determined as follows. 
The credits are assumed to increase starting from their MY 2016 value 
at a rate approximately commensurate with the increasing stringency of 
the 2017-2025 GHG standards, but not exceeding a 20% penetration rate 
increase in any given year, until the maximum credits are achieved by 
2021. EPA expects that manufacturers would be changing over to 
alternative refrigerants at the time of complete vehicle redesign, 
which occurs about every 5 years, though in confidential meetings, some 
manufacturers/suppliers have informed EPA that a modification of the 
hardware for some alternative refrigerant systems may be able to be 
done between redesign periods. Given the significant number of credits 
for using low GWP refrigerants, as well as the variety of alternative 
refrigerants that appear to be available, EPA believes that a total 
phase-in of alternative refrigerants is likely to begin in the near 
future and be completed by no later than 2021 (as shown in Table III-13 
above). EPA requests comment on our assumptions for the phase-in rate 
for alternative refrigerants.
    The progression of the average credits (relative to the maximum) 
also defines the relative year-on-year costs as described in Chapter 3 
of the Joint TSD. The costs are proportioned by the ratio of the 
average credit in any given year to the maximum credit. This is nearly 
equivalent to proportioning costs to technology penetration rates as is 
done for all the other technologies. However because the maximum 
efficiency credits for cars and trucks have changed since the 2012-2016 
rule, proportioning to the credits provides a more realistic and 
smoother year-on-year sequencing of costs.\252\
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    \252\ In contrast, the technology penetration rates could have 
anomalous (and unrealistic) discontinuities that would be reflected 
in the cost progressions. This issue is only specific to A/C credits 
and costs and not to any other technology analysis in this proposal.
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    EPA seeks comment on all aspects of the A/C credit program, 
including changes from the current A/C credit program and the details 
in the Joint TSD.

[[Page 75002]]

a. Air Conditioning Leakage (``Direct'') Emissions and Credits
i. Quantifying A/C Leakage Credits for Today's Refrigerant
    As previously discussed, EPA proposes to continue the existing 
leakage credit program, with minor modifications. Although in general 
EPA continues to prefer performance-based standards whenever possible, 
A/C leakage is very difficult to accurately measure in a laboratory 
test, due to the typical slowness of such leaks and the tendency of 
leakage to develop unexpectedly as vehicles age. At this time, no 
appropriate performance test for refrigerant leakage is available. 
Thus, as in the existing MYs 2012-2016 program, EPA would associate 
each available leakage-reduction technology with associated leakage 
credit value, which would be added together to quantify the overall 
system credit, up to the maximum available credit. EPA's Leakage Credit 
method is drawn from the SAE J2727 method (HFC-134a Mobile Air 
Conditioning System Refrigerant Emission Chart, August 2008 version), 
which in turn was based on results from the cooperative ``IMAC'' 
study.\253\ EPA is proposing to incorporate several minor modifications 
that SAE is making to the J2727 method, but these do not affect the 
proposed credit values for the technologies. Chapter 5 of the joint TSD 
includes a full discussion of why EPA is proposing to continue the 
design-based ``menu'' approach to quantifying Leakage Credits, 
including definitions of each of the technologies associated with the 
values in the menu.
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    \253\ Society of Automotive Engineers, ``IMAC Team 1--
Refrigerant Leakage Reduction, Final Report to Sponsors,'' 2006. 
This document is available in Docket EPA-HQ-OAR-2010-0799.
---------------------------------------------------------------------------

    In addition to the above ``menu'' for vehicles using the current 
high-GWP refrigerant (HFC-134a), EPA also proposes to continue to 
provide the leakage credit calculation for vehicles using an 
alternative, lower-GWP refrigerant. This provision was also a part of 
the MYs 2012-2016 rule. As with the earlier rule, the agency is 
including this provision because shifting to lower-GWP alternative 
refrigerants would significantly reduce the climate-change concern 
about HFC-134a refrigerant leakage by reducing the direct climate 
impacts. Thus, the credit a manufacturer could generate is a function 
of the degree to which the GWP of an alternative refrigerant is less 
than that of the current refrigerant (HFC-134a).
    In recent years, the global industry has given serious attention 
primarily to three of the alternative refrigerants: HFO-1234yf, HFC-
152a, and carbon dioxide (R-744). Work on additional low GWP 
alternatives continues. HFO1234yf, has a GWP of 4, HFC-152a has a GWP 
of 124 and CO2 has a GWP of 1.\254\ Both HFC-152a and 
CO2 are produced commercially in large amounts and thus, 
supply of refrigerant is not a significant factor preventing 
adoption.\255\ HFC-152a has been shown to be comparable to HFC-134a 
with respect to cooling performance and fuel use in A/C systems.\256\
---------------------------------------------------------------------------

    \254\ IPCC 4th Assessment Report.
    \255\ The U.S. has one of the largest industrial quality 
CO2 production facilities in the world (Gale Group, 
2011). HFC-152a is used widely as an aerosol propellant in many 
commercial products and thus potentially available for refrigerant 
use in motor vehicle A/C. Production volume for non-confidential 
chemicals reported under the 2006 Inventory Update Rule. Chemical: 
Ethane, 1,1-difluoro-. Aggregated National Production Volume: 50 to 
<100 million pounds. [US EPA; Non-Confidential 2006 Inventory Update 
Reporting. National Chemical Information. Ethane, 1,1-difluoro- (75-
37-6). Available from, as of September 21, 2009: http://cfpub.epa.gov/iursearch/index.cfm?s=chem&err=t.
    \256\ United Nations Environment Program, Technology and 
Economic Assessment Panel, ``Assessment of HCFCs and Environmentally 
Sound Alternatives,'' TEAP 2010 Progress Report, Volume 1, May 2010. 
http://www.unep.ch/ozone/Assessment_Panels/TEAP/Reports/TEAP_Reports/teap-2010-progress-report-volume1-May2010.pdf. This document 
is available in Docket EPA-HQ-OAR-2010-0799.
---------------------------------------------------------------------------

    In the MYs 2012-2016 GHG rule, a manufacturer using an alternative 
refrigerant would receive no credit for leakage-reduction technologies. 
At that time, EPA believed that from the perspective of primary climate 
effect, leakage of a very low GWP refrigerant is largely irrelevant. 
However, there is now reason to believe that the need for repeated 
recharging (top-off) of A/C systems with another, potentially costly 
refrigerant could lead some consumers and/or repair facilities to 
recharge a system designed for use with an alternative, low GWP 
refrigerant with either HFC-134a or another high GWP refrigerant. 
Depending on the refrigerant, it may still be feasible, although not 
ideal, for systems designed for a low GWP refrigerant to operate on 
HFC-134a; in particular, the A/C system operating pressures for HFO-
1234yf and HFC-152a might allow their use. Thus, the need for repeated 
recharging in use could slow the transition away from the high-GWP 
refrigerant even though recharging with a refrigerant different from 
that already in the A/C system is not authorized under current 
regulations.\257\
---------------------------------------------------------------------------

    \257\ See appendix D to 40 CFR part 82, subpart G.
---------------------------------------------------------------------------

    For alternative refrigerant systems, EPA is proposing to add to the 
existing credit calculation approach for alternative-refrigerant 
systems a provision that would provide a disincentive for manufacturers 
if systems designed to operate with HFO-1234yf, HFC-152a, R744, or some 
other low GWP refrigerant incorporated fewer leakage-reduction 
technologies. A system with higher annual leakage could then be 
recharged with HFC-134a or another refrigerant with a GWP higher than 
that with which the vehicle was originally equipped (e.g., HFO-1234yf, 
CO2, or HFC-152a). Some stakeholders have suggested that EPA 
take precautions to address the potential for HFC-134a to replace HFO-
1234yf, for example, in vehicles designed for use with the new 
refrigerant (see comment and response section of EPA's SNAP rule on 
HFO-1234yf, 76 FR 17509; March 29, 2011).\258\ In EPA's proposed 
disincentive provision, manufacturers would avoid some or all of a 
deduction in their Leakage Credit of about 2 g/mi by maintaining the 
use of low-leak components after a transition to an alternative 
refrigerant.
---------------------------------------------------------------------------

    \258\ Regulations in Appendix D to Subpart G of 40 CFR part 82 
prohibit topping off the refrigerant in a motor vehicle A/C system 
with a different refrigerant.
---------------------------------------------------------------------------

ii. Issues Raised by a Potential Broad Transition to Alternative 
Refrigerants
    As described previously, use of alternative, lower-GWP refrigerants 
for mobile use reduces the climate effects of leakage or release of 
refrigerant through the entire life-cycle of the A/C system. Because 
the impact of direct emissions of such refrigerants on climate is 
significantly less than that for the current refrigerant HFC-134a, 
release of these refrigerants into the atmosphere through direct 
leakage, as well as release due to maintenance or vehicle scrappage, is 
predictably less of a concern than with the current refrigerant. As 
discussed above, there remains a concern, even with a low-GWP 
refrigerant, that some repairs may repeatedly result in the replacement 
of the lower-GWP refrigerant from a leaky A/C system with a readily-
available, inexpensive, high-GWP refrigerant.
    For a number of years, the automotive industry has explored lower-
GWP refrigerants and the systems required for them to operate 
effectively and efficiently, taking into account refrigerant costs, 
toxicity, flammability, environmental impacts, and A/C system costs, 
weight, complexity, and efficiency. European Union regulations require 
a transition to alternative refrigerants with a GWP of 150 or less for 
motor vehicle air conditioning. The European Union's Directive on 
mobile

[[Page 75003]]

air-conditioning systems (MAC Directive \259\) aims at reducing 
emissions of specific fluorinated greenhouse gases in the air-
conditioning systems fitted to passenger cars (vehicles under EU 
category M1) and light commercial vehicles (EU category N1, class 1).
---------------------------------------------------------------------------

    \259\ 2006/40/EC.
---------------------------------------------------------------------------

    The main objectives of the EU MAC Directive are: to control leakage 
of fluorinated greenhouse gases with a global warming potential (GWP) 
higher than 150 used in this sector; and to prohibit by a specified 
date the use of higher GWP refrigerants in MACs. The MAC Directive is 
part of the European Union's overall objectives to meet commitments 
made under the UNFCCC's Kyoto Protocol. This transition starts with new 
car models in 2011 and continues with a complete transition to 
manufacturing all new cars with low GWP refrigerant by January 1, 2017.
    One alternative refrigerant has generated significant interest in 
the automobile manufacturing industry and it appears likely to be used 
broadly in the near future for this application. This refrigerant, 
called HFO-1234yf, has a GWP of 4. The physical and thermodynamic 
properties of this refrigerant are similar enough to HFC-134a that auto 
manufacturers would need to make relatively minor technological changes 
to their vehicle A/C systems in order to manufacture and market 
vehicles capable of using HFO-1234yf. Although HFO-1234yf is flammable, 
it requires a high amount of energy to ignite, and is expected to have 
flammability risks that are not significantly different from those of 
HFC-134a or other refrigerants found acceptable subject to use 
conditions (76 FR 17494-17496, 17507; March 29, 2011).
    There are some drawbacks to the use of HFO-1234yf. Some 
technological changes, such as the addition of an internal heat 
exchanger in the A/C system, may be necessary to use HFO-1234yf. In 
addition, the anticipated cost of HFO-1234yf is several times that of 
HFC-134a. At the time that EPA's Significant New Alternatives Policy 
(SNAP) program issued its determination allowing the use of HFO-1234yf 
in motor vehicle A/C systems, the agency cited estimated costs of $40 
to $60 per pound, and stated that this range was confirmed by an 
automobile manufacturer (76 FR 17491; March 29, 2011) and a component 
supplier.\260\ By comparison, HFC-134a currently costs about $2 to $4 
per pound.\261\ The higher cost of HFO-1234yf is largely because of 
limited global production capability at this time. However, because it 
is more complicated to produce the molecule for HFO-1234yf, it is 
unlikely that it will ever be as inexpensive as HFC-134a is currently. 
In Chapter 5 of the TSD (see Section 5.1.4), the EPA has accounted for 
this additional cost of both the refrigerant as well as the hardware 
upgrades.
---------------------------------------------------------------------------

    \260\ Automotive News, April 18, 2011.21.
    \261\ Ibid.
---------------------------------------------------------------------------

    Manufacturers have seriously considered other alternative 
refrigerants in recent years. One of these, HFC-152a, has a GWP of 
124.\262\ HFC-152a is produced commercially in large amounts.\263\ HFC-
152a has been shown to be comparable to HFC-134a with respect to 
cooling performance and fuel use in A/C systems.\264\ HFC-152a is 
flammable, listed as A2 by ASHRAE.\265\ Air conditioning systems using 
this refrigerant would require engineering strategies or devices in 
order to reduce flammability risks to acceptable levels (e.g., use of 
release valves or secondary-loop systems). In addition, CO2 
can be used as a refrigerant. It has a GWP of 1, and is widely 
available commercially.\266\ Air conditioning systems using 
CO2 would require different designs than other refrigerants, 
primarily due to the higher operating pressures that are required. 
Reesearch continues exploring the potential for these alternative 
refrigerants for automotive applications. Finally, EPA is aware that 
the chemical and automobile manufacturing industries continue to 
consider additional refrigerants with GWPs less than 150. For example, 
SAE International is currently running a cooperative research program 
looking at two low GWP refrigerant blends, with the program to complete 
in 2012.\267\ The producers of these blends have not to date applied 
for SNAP approval. However, we expect that there may well be additional 
alternative refrigerants available to vehicle manufacturers in the next 
few years.
---------------------------------------------------------------------------

    \262\ IPCC 4th Assessment Report.
    \263\ HFC-152a is used widely as an aerosol propellant in many 
commercial products and may potentially be available for refrigerant 
use in motor vehicle A/C systems. Aggregated national production 
volume is estimated to be between 50 and 100 million pounds. [US 
EPA; Non-Confidential 2006 Inventory Update Reporting. National 
Chemical Information.]
    \264\ May 2010 TEAP XXI/9 Task Force Report, http://www.unep.ch/ozone/Assessment_Panels/TEAP/Reports/TEAP_Reports/teap-2010-progress-report-volume1-May2010.pdf.
    \265\ A wide range of concentrations has been reported for HFC-
152a flammability where the gas poses a risk of ignition and fire 
(3.7%-20% by volume in air) (Wilson, 2002). EPA finalized a rule in 
2008 listing HFC-152a as acceptable subject to use conditions in 
motor vehicle air-conditioning, one of these restricting refrigerant 
concentrations in the passenger compartment resulting from leaks 
above the lower flammability limit of 3.7% (see 71 FR 33304; June 
12, 2008).
    \266\ The U.S. has one of the largest industrial quality 
CO2 production facilities in the world (Gale Group, 
2011).
    \267\ ``Recent Experiences in MAC System Development: `New 
Alternative Refrigerant Assessment' Technical Update. Enrique Peral-
Antunez, Renault. Presentation at SAE Alternative Refrigerant and 
System Efficiency Symposium. September, 2011. Available online at 
http://www.sae.org/events/aars/presentations/2011/Enrique%20Peral%20Renault%20Recent%20Experiences%20in%20MAC%20System%20Dev.pdf .
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(1) Related EPA Actions to Date and Potential Actions Concerning 
Alternative Refrigerants
    EPA is addressing potential environmental and human health concerns 
of low-GWP alternative refrigerants through a number of actions. The 
SNAP program has issued final rules regulating the use of HFC-152a and 
HFO-1234yf in order to reduce their potential risks (June 12, 2008, 73 
FR 33304; March 29, 2010, 76 FR 17488). The SNAP rule for HFC-152a 
allows its use in new motor vehicle A/C systems where proper 
engineering strategies and/or safety devices are incorporated into the 
system. The SNAP rules for both HFC-152a and HFO-1234yf require meeting 
safety requirements of the industry standard SAE J639. With both 
refrigerants, EPA expects that manufacturers conduct and keep on file 
failure mode and effect analysis for the motor vehicle A/C system, as 
stated in SAE J1739. EPA has also proposed a rule that would allow use 
of carbon dioxide as a refrigerant subject to use conditions for motor 
vehicle A/C systems (September 21, 2006; 71 FR 55140). EPA expects to 
finalize a rule for use of carbon dioxide in motor vehicle A/C systems 
in 2012.
    Under Section 612(d) of the Clean Air Act, any person may petition 
EPA to add alternatives to or remove them from the list of acceptable 
substitutes for ozone depleting substances. The National Resource 
Defense Council (NRDC) submitted a petition on behalf of NRDC, the 
Institute for Governance & Sustainable Development (IGSD), and the 
Environmental Investigation Agency-US (EIA-US) to EPA under Clean Air 
Act Section 612(d), requesting that the Agency remove HFC-134a from the 
list of acceptable substitutes and add it to the list of unacceptable 
(prohibited) substitutes for motor vehicle A/C, among other uses.\268\ 
EPA has found this

[[Page 75004]]

petition complete specifically for use of HFC-134a in new motor vehicle 
A/C systems for use in passenger cars and light duty vehicles. EPA 
intends to initiate a separate notice and comment rulemaking in 
response to this petition in the future.
---------------------------------------------------------------------------

    \268\ NRDC et al. Re: Petition to Remove HFC-134a from the List 
of Acceptable Substitutes under the Significant New Alternatives 
Policy Program (November 16, 2010).
---------------------------------------------------------------------------

    EPA expects to address potential toxicity issues with the use of 
CO2 as a refrigerant in automotive A/C systems in the 
upcoming final SNAP rule mentioned above. CO2 has a 
workplace exposure limit of 5000 pm on a 8-hour time-weighted 
average.\269\ EPA has also addressed potential toxicity issues with 
HFO-1234yf through a significant new use rule (SNUR) under the Toxic 
Substances Control Act (TSCA) (October 27, 2010; 75 FR 65987). The SNUR 
for HFO-1234yf allows its use as an A/C refrigerant for light-duty 
vehicles and light-duty trucks, and found no significant toxicity 
issues with that use. As mentioned in the NPRM for a VOC exemption for 
HFO-1234yf, ``The EPA considered the results of developmental testing 
available at the time of the final SNUR action to be of some concern, 
but not a sufficient basis to find HFO-1234yf unacceptable under the 
SNUR determination. As a result, the EPA requested additional toxicity 
testing and issued the SNUR for HFO-1234yf. The EPA has received and is 
presently reviewing the results of the additional toxicity testing. The 
EPA continues to believe that HFO-1234yf, when used in new automobile 
air conditioning systems in accordance with the use conditions under 
the SNAP rule, does not result in significantly greater risks to human 
health than the use of other available substitutes.'' (76 FR 64063, 
October 17, 2011). HFC-152a is considered relatively low in toxicity 
and comparable to HFC-134a, both of which have a workplace 
environmental exposure limit from the American Industrial Hygiene 
Association of 1000 ppm on an 8-hour time-weighted average (73 FR 
33304; June 12, 2008).
---------------------------------------------------------------------------

    \269\ The 8-hour time-weighted average worker exposure limit for 
CO2 is consistent with OSHA's PEL-TWA, and ACGIH'S TLV-
TWA of 5,000 ppm (0.5%).
---------------------------------------------------------------------------

    EPA has issued a proposed rule, proposing to exempt HFO-1234yf from 
the definition of ``volatile organic compound'' (VOC) for purposes of 
preparing State implementation Plans (SIPs) to attain the national 
ambient air quality standards for ozone under Title I of the Clean Air 
Act (October 17, 2011; 76 FR 64059). VOCs are a class of compounds that 
can contribute to ground level ozone, or smog, in the presence of 
sunlight. Some organic compounds do not react enough with sunlight to 
create significant amounts of smog. EPA has already determined that a 
number of compounds, including the current automotive refrigerant, HFC-
134a as well as HFC-152a, are low enough in photochemical reactivity 
that they do not need to be regulated under SIPs. CO2 is not 
considered a volatile organic compound (VOC) for purposes of preparing 
SIPs.
(2) Vehicle Technology Requirements for Alternative Refrigerants
    As discussed above, significant hardware changes could be needed to 
allow use of HFC-152a or CO2, because of the flammability of 
HFC-152a and because of the high operating pressure required for 
CO2. In the case of HFO-1234yf, manufacturers have said that 
A/C systems for use with HFO-1234yf would need a limited amount of 
additional hardware to maintain cooling efficiency compared to HFC-
134a. In particular, A/C systems may require an internal heat exchanger 
to use HFO-1234yf, because HFO-1234yf would be less effective in A/C 
systems not designed for its use. Because EPA's SNAP ruling allows only 
for its use in new vehicles, we expect that manufacturers would 
introduce cars using HFO-1234yf only during complete vehicle redesigns 
or when introducing new models.\270\ EPA expects that the same would be 
true for other alternative refrigerants that are potential candidates 
(e.g., HFC-152a and CO2). This need for complete vehicle 
redesign limits the potential pace of a transition from HFC-134a to 
alternative refrigerants. In meetings with EPA, manufacturers have 
informed EPA that, in the case of HFO-1234yf, for example, they would 
need to upgrade their refrigerant storage facilities and charging 
stations on their assembly lines. During the transition period between 
the refrigerants, some of these assembly lines might need to have the 
infrastructure for both refrigerants simultaneously since many lines 
produce multiple vehicle models. Moreover, many of these plants might 
not immediately have the facilities or space for two refrigerant 
infrastructures, thus likely further increasing necessary lead time. 
EPA took these kinds of factors into account in estimating the 
penetration of alternative refrigerants, and the resulting estimated 
average credits over time shown in Table III-13.
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    \270\ Some suppliers and manufacturers have informed us that 
some vehicles may be able to upgrade A/C systems during a refresh of 
an existing model (between redesign years). However, this is highly 
dependent on the vehicle, space constraints behind the dashboard, 
and the manufacturing plant, so an upgrade may be feasible for only 
a select few models.
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    Switching to alternative refrigerants in the U.S. market continues 
to be an attractive option for automobile manufacturers because 
vehicles with low GWP refrigerant could qualify for a significantly 
larger leakage credit. Manufacturers have expressed to EPA that they 
would plan to place a significant reliance on, or in some cases believe 
that they would need, alternative refrigerant credits for compliance 
with GHG fleet emission standards starting in MY 2017.
(3) Alternative Refrigerant Supply
    EPA is aware that another practical factor affecting the rate of 
transition to alternative refrigerants is their supply. As mentioned 
above, both HFC-152a and CO2 are being produced commercially 
in large quantities and thus, although their supply chain does not at 
this time include auto manufacturers, it may be easier to increase 
production to meet additional demand that would occur if manufacturers 
adopt either as a refrigerant. However, for the newest refrigerant 
listed under the SNAP program, HFO-1234yf, supply is currently limited. 
There are currently two major producers of HFO-1234yf, DuPont and 
Honeywell, that are licensed to produce this chemical for the U.S. 
market. Both companies will likely provide most of their production for 
the next few years from a single overseas facility, as well as some 
production from small pilot plants. The initial emphasis for these 
companies is to provide HFO-1234yf to the European market, where 
regulatory requirements for low GWP refrigerants are already in effect. 
These same companies have indicated that they plan to construct a new 
facility in the 2014 timeframe and intend to issue a formal 
announcement about that facility close to the end of this calendar 
year. This facility should be designed to provide sufficient production 
volume for a worldwide market in coming years. EPA expects that the 
speed of the transition to alternative refrigerants in the U.S. may 
depend on how rapidly chemical manufacturers are able to provide supply 
to automobile manufacturers sufficient to allow most or all vehicles 
sold in the U.S. to be built using the alternative refrigerant.
    One manufacturer (GM) has announced its intention to begin 
introducing vehicle models using HFO-

[[Page 75005]]

1234yf as early as MY 2013.\271\ EPA is not aware of other companies 
that have made a public commitment to early adoption of HFO-1234yf or 
other alternative refrigerants. As described above, we expect that in 
most cases a change-over to systems designed for alternative 
refrigerants would be limited to vehicle product redesign cycles, 
typically about every 5 years. Because of this, the pace of 
introduction is likely to be limited to about 20% of a manufacturer's 
fleet per year. In addition, the current uncertainty about the 
availability of supply of the new refrigerant in the early years of 
introduction into vehicles in the U.S. vehicles, also discussed above, 
means that the change-over may not occur at every vehicle redesign 
point. Thus, even with the announced intention of this one manufacturer 
to begin early introduction of an alternative refrigerant, EPA's 
analysis of the overall industry trend will assume minimal penetration 
of the U.S. vehicle market before MY 2017.
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    \271\ General Motors Press Release, July 23, 2010. ``GM First to 
Market Greenhouse Gas-Friendly Air Conditioning Refrigerant in 
U.S''.
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    Table III-13 shows that, starting from MY 2017, virtually all of 
the expected increase in generated credits would be due to a gradual 
increase in penetration of alternative refrigerants. In earlier model 
years, EPA attributes the expected increase in Leakage Credits to 
improvements in low-leak technologies.
(4) Projected Potential Scenarios for Auto Industry Changeover to 
Alternative Refrigerants
    As discussed above, EPA is planning on issuing a proposed SNAP 
rulemaking in the future requesting comment on whether to move HFC-134a 
from the list of acceptable substitutes to the list of unacceptable 
(prohibited) substitutes. However, the agency has not determined the 
specific content of that proposal, and the results of any final action 
are unknowable at this time. EPA recognizes that a major element of 
that proposal will be the evaluation of the time needed for a 
transition for automobile manufacturers away from HFC-134a. Thus, there 
could be multiple scenarios for the timing of a transition considered 
in that future proposed rulemaking. Should EPA finalize a rule under 
the SNAP program that prohibits the use of HFC-134a in new vehicles, 
the agency plans to evaluate the impacts of such a SNAP rule to 
determine whether it would be necessary to consider revisions to the 
availability and use of the compliance credit for MY 2017-2025.
    For purposes of this proposed GHG rule, EPA is assuming the current 
status, where there are no U.S. regulatory requirements for 
manufacturers to eliminate the use of HFC-134a for newly manufactured 
vehicles. Thus, the agency would expect that the market penetration of 
alternatives will proceed based on supply and demand and the strong 
incentives in this proposal. Given the combination of clear interest 
from automobile manufacturers in switching to an alternative 
refrigerant, the interest from HFO-1234yf alternative refrigerant 
manufacturers to expand their capacity to produce and market the 
refrigerant, and current commercial availability of HFC-152a and 
CO2, EPA believes it is reasonable to project that supply 
would be adequate to support the orderly rate of transition to an 
alternative refrigerant described above. As mentioned earlier, at least 
one U.S. manufacturer already has plans to introduce models using the 
alternative refrigerant HFO-1234yf beginning in MY 2013. However, it is 
not certain how widespread the transition to a alternative refrigerants 
will be in the U.S., nor how quickly that transition will occur in the 
absence of requirements or strong incentives.
    There are other situations that could lead to an overall fleet 
changeover from HFC-134a to alternative refrigerants. For example, the 
governments of the U.S., Canada, and Mexico have proposed to the 
Parties to the Montreal Protocol on Substances that Deplete the Ozone 
Layer that production of HFCs be reduced over time. The North American 
Proposal to amend the Montreal Protocol allows the global community to 
make near-term progress on climate change by addressing this group of 
potent greenhouse gases. The proposal would result in lower emissions 
in developed and developing countries through the phase-down of the 
production and consumption of HFCs. If an amendment were adopted by the 
Parties, then switching from HFC-134a to alternative refrigerants would 
likely become an attractive option for decreasing the overall use and 
emissions of high-GWP HFCs, and the Parties would likely initiate or 
expand policies to incentivize suppliers to ramp up the supply of 
alternative refrigerants. Options for reductions would include 
transition from HFCs, moving from high to lower GWP HFCs, and reducing 
charge sizes.
    EPA requests comment on the implications for the program of the 
refrigerant transition scenario assumed for the analyses supporting 
this NPRM; that is, where there are no U.S. regulatory requirements for 
manufacturers to eliminate the use of HFC-134a for newly manufactured 
vehicles. EPA requests comment on factors that may affect the industry 
demand for refrigerant and its U.S. and international supply.
b. Air Conditioning Efficiency (``Indirect'') Emissions and Credits
    In addition to the A/C leakage credits discussed above, EPA is 
proposing credits for improving the efficiency of--and thus reducing 
the CO2 emissions from--A/C systems. Manufacturers have 
available a number of very cost-effective technology options that can 
reduce these A/C-related CO2 emissions, which EPA estimates 
are currently on average 11.9 g/mi for cars and 17.1 for trucks 
nationally.\272\ When manufacturers incorporate these technologies into 
vehicles that clearly result in reduced CO2 emissions, EPA 
believes that A/C Efficiency Credits are warranted. Based on extensive 
industry testing and EPA analysis, the agency proposes that eligible 
efficiency-improving technologies be limited to up to a maximum 42% 
improvement,\273\ which translates into a maximum credit value of 5.0 
g/mi for cars and 7.2 g/mi for trucks.
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    \272\ EPA derived these estimates using a sophisticated new 
vehicle simulation tool that EPA has developed since the completion 
of the MYs 2012-2016 final rule. Although results are very similar 
to those in the earlier rule, EPA believes they represent more 
accurate estimates. Chapter 5 of the Joint TSD presents a detailed 
discussion of the development of the simulation tool and the 
resulting emissions estimates.
    \273\ The cooperative IMAC study mentioned above concluded that 
these emissions can be reduced by as much as 40% through the use of 
these technologies. In addition, EPA has concluded that improvements 
in the control software for the A/C system, including more precise 
control of such components as the radiator fan and compressor, can 
add another 2% to the emission reductions. In total, EPA believes 
that a total maximum improvement of 42% is available for A/C 
systems.
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    As discussed further in Section III.C.1.b.iii below, under its EPCA 
authority, EPA is proposing, in coordination with NHTSA, to allow 
manufacturers to generate fuel consumption improvement values for 
purposes of CAFE compliance based on the use of A/C efficiency 
technologies. EPA is proposing that both the A/C efficiency credits 
under EPA's GHG program and the A/C efficiency fuel consumption 
improvement values under the CAFE program would be based on the same 
methodologies and test procedures, as further described below.
i. Quantifying A/C Efficiency Credits
    In the 2012-2016 rule, EPA proposed that A/C Efficiency Credits be 
calculated based on the efficiency-improving

[[Page 75006]]

technologies included in the vehicle. The design-based approach, 
associating each technology with a specific credit value, was a 
surrogate for a using a performance test to determine credit values. 
Although EPA generally prefers measuring actual emissions performance 
to a design-based approach, measuring small differences in A/C 
CO2 emissions is very difficult, and an accurate test 
procedure capable of determining such differences was not available.
    In conjunction with the (menu or) design-based calculation, EPA 
continues to believe it is important to verify that the technologies 
installed to generate credits are improving the efficiency of the A/C 
system. In the 2012-2016 rule, EPA required that manufacturers submit 
data from an A/C CO2 Idle Test as a prerequisite to 
accessing the design-based credit calculation method. Beginning in MY 
2014, manufacturers wishing to generate the A/C Efficiency Credits need 
to meet a CO2 emissions threshold on the Idle Test.
    As manufacturers have begun to evaluate the Idle Test requirements, 
they have made EPA aware of an issue with the test's original design. 
In the MYs 2012-2016 rule, EPA received comments that the Idle Test did 
not properly capture the efficiency impact of some of the technologies 
on the Efficiency Credit menu list. EPA also received comments that 
idle operation is not typical of real-world driving. EPA acknowledges 
that both of these comments have merit. At the time of the MY 2012-2016 
rule, we expected that many manufacturers would be able to demonstrate 
improved efficiency with technologies like forced cabin air 
recirculation or electronically-controlled, and variable-displacement 
compressors., But under idle conditions, testing by manufacturers has 
shown that the benefits from these technologies can be difficult to 
quantify. Also, recent data provided by the industry shows that some 
vehicles that incorporate higher-efficiency A/C technologies are not 
able to consistently reach the CO2 threshold on the current 
Idle Test. The available data also indicates that meeting the threshold 
tends to be more difficult for vehicles with smaller-displacement 
engines.\274\ EPA continues to believe that there are some technologies 
that do have their effectiveness demonstrated during idle and that idle 
is a significant fraction of real-world operation.\275\
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    \274\ Chapter 5 of the Joint TDS provides details about the 
manufacturers' testing of these vehicles.
    \275\ More discussion of real world idle operation can be found 
below and in chapter 5 of the joint TSD in the description of stop-
start off cycle credits.
---------------------------------------------------------------------------

    Although EPA believes some adjustments in the Idle Test are 
warranted and is proposing such adjustments, the agency also believes 
that a reasonable degree of verification is still needed, to 
demonstrate that that A/C efficiency-improving technologies for which 
manufacturers are basing credits are indeed implemented properly and 
are reducing A/C-related fuel consumption. EPA continues to believe 
that the Idle Test is a reasonable measure of some A/C-related 
CO2 emissions as there is significant real-world driving 
activity at idle, and it significantly exercises a number of the A/C 
technologies from the menu. Therefore, EPA proposes to maintain the use 
of Idle Test as a prerequisite for generating Efficiency Credits for 
MYs 2014-2016. However, in order to provide reasonable verification 
while encouraging the development and use of efficiency-improving 
technologies, EPA proposes to revise the CO2 threshold. 
Specifically, the agency proposes to scale the magnitude of the 
threshold to the displacement of the vehicle's engine, with smaller-
displacement engines having a higher ``grams per minute'' threshold 
than larger-displacement engines. Thus, for vehicles with smaller-
displacement engines, the threshold would be less stringent. The 
revised threshold would apply for MYs 2014-2016, and can be used 
(optionally) instead of the flat gram per minute threshold that applies 
for MYs 2014, through 2016.\276\ In addition to revising the threshold, 
EPA proposes to relax the average ambient temperature and humidity 
requirements, due to the difficulty in controlling the year-round 
humidity in test cells designed for FTP testing. EPA requests comment 
on the proposed continued use of the Idle Test as a tool to validate 
the function of a vehicle's A/C efficiency-improving technologies, and 
on the revised CO2 threshold and ambient requirements.
---------------------------------------------------------------------------

    \276\ Chapter 5 of the Joint TSD describes the available data 
relevant to testing on the Idle Test and to the design of the 
displacement-weighted revised threshold in more detail.
---------------------------------------------------------------------------

    As stated above, EPA still considers the Idle Test to be a 
reasonable measure of some A/C-related CO2 emissions. 
However, there are A/C efficiency-improving technologies that cannot be 
fully evaluated with the Idle Test. In addition to proposing the 
revised Idle Test, EPA proposes that manufacturers have the option of 
reporting results from a new transient A/C test in place of the Idle 
Test, for MYs 2014-2016. In the year since the previous GHG rule was 
finalized, EPA, CARB, and a consortium of auto manufacturers (USCAR) 
have developed a new transient test procedure that can measure the 
effect of the operation of the overall A/C system on CO2 
emissions and fuel economy. The new test, known as ``AC17'' (for Air 
Conditioning, 2017), and described in detail in Chapter 5 of the Joint 
TSD, is essentially a combination of the existing SC03 and HWFET test 
procedures, which, with the proposed modifications, would exercise the 
A/C system (and new technologies) under conditions representing typical 
U.S. driving and climate.
    Some aspects of the AC17 test are still being developed and 
improved, but the basic procedure is sufficiently complete for EPA to 
propose it as a reporting option alternative to the Idle Test threshold 
in 2014, and a replacement for the Idle Test in 2017, as a prerequisite 
for generating Efficiency Credits. In model years 2014 to 2016, the 
AC17 test would be used to demonstrate that a vehicle's A/C system is 
delivering the efficiency benefits of the new technologies, and the 
menu will still be utilized. Manufacturers would run the AC17 test 
procedure on each vehicle platform that incorporates the new 
technologies, with the A/C system off and then on, and then report 
these test results to the EPA. This reporting option would replace the 
need for the Idle Test. In addition to reporting the test results, EPA 
will require that manufactures provide detailed vehicle and A/C system 
information for each vehicle tested (e.g. vehicle class, model type, 
curb weight, engine size, transmission type, interior volume, climate 
control type, refrigerant type, compressor type, and evaporator/
condenser characteristics).
    For model years 2017 and beyond, the A/C Idle Test menu and 
threshold requirement would be eliminated and be replaced with the AC17 
test, as a prerequisite for access to the credit menu. For vehicle 
models which manufacturers are applying for A/C efficiency credits, the 
AC17 test would be run to validate that the performance and efficiency 
of a vehicle's A/C technology is commensurate to the level of credit 
for which the manufacturer is applying. To determine whether the 
efficiency improvements of these technologies are being realized on the 
vehicle, the results of an AC17 test performed on a new vehicle model 
would be compared to a ``baseline'' vehicle which does not incorporate 
the efficiency-improving technologies. If the difference between the 
new vehicle's AC17 test result and the baseline vehicle test result is 
greater than or equal to the amount of menu credit for

[[Page 75007]]

which the manufacturer is applying, then the menu credit amount would 
be generated. However, if the difference in test results did not 
demonstrate the full menu-based potential of the technology, a partial 
credit could still be generated. This partial credit would be 
proportional to how far the difference in results was from the expected 
menu-based credit (i.e., the sum of the individual technology credits). 
The baseline vehicle is defined as one with characteristics which are 
similar to the new vehicle, except that it is not equipped with the 
efficiency-improving technologies (or they are de-activated). EPA is 
seeking comment on this approach to qualifying for A/C efficiency 
credits.
    The AC17 test requires a significant amount of time for each test 
(nearly 4 hours) and must be run in expensive SC03-capable facilities. 
EPA believes that the purpose of the test--to validate that A/C 
CO2 reductions are indeed occurring and hence that the 
manufacturer is eligible for efficiency credits--would be met if the 
manufacturer performs the new test on a limited subset of test 
vehicles. EPA proposes that manufacturers wishing to use the AC17 test 
to validate a vehicle's A/C technology be required to test one vehicle 
from each platform. For this purpose, ``platform'' would be defined as 
a group of vehicles with common body floorplan, chassis, engine, and 
transmission.\277\ EPA requests comment on the new test and its 
proposed use. EPA also requests comment on using the AC17 test to 
quantify efficiency credits, instead of the menu. EPA is also seeking 
comment on an option starting in MY 2017, to have the AC17 test be used 
in a similar fashion as the Idle Test, such that if the CO2 
measurements are below a certain threshold value, then credit would be 
quantified based on the menu. EPA also seeks comment on eliminating the 
idle test in favor of reporting only the AC17 test for A/C efficiency 
credits starting as early as MY 2014.
---------------------------------------------------------------------------

    \277\ A single platform may encompass a larger group of fuel 
economy label classes or car lines (40 CFR Sec.  600.002-93), such 
as passenger cars, compact utility vehicles, and station wagons The 
specific vehicle selection requirements for manufacturers using this 
testing are laid out in the regulations associated with this NPRM.
---------------------------------------------------------------------------

ii. Potential Future Use of the New A/C Test for Credit Quantification
    As described above, EPA is proposing to use the AC17 test as a 
prerequisite to generating A/C Efficiency Credits. The test is well-
suited for this purpose since it can accurately measure the difference 
in the increased CO2 emissions that occur when the A/C 
system is turned on vs. when it is turned off. This difference in the 
``off-on'' CO2 emissions, along with details about the 
vehicle and its A/C system design, will help inform EPA as to how these 
efficiency-improving technologies perform on a wide variety of vehicle 
types.
    However, the test is limited in its ability to accurately quantify 
the amount of credit that would be warranted by an improved A/C system 
on a particular vehicle. This is because to determine an absolute--
rather than a relative--difference in CO2 effect for an 
individual vehicle design would require knowledge of the A/C system 
CO2 performance for that exact vehicle, but without those 
specific A/C efficiency improvements installed. This would be difficult 
and costly, since two test vehicles (or a single vehicle with the 
components removed and replaced) would be necessary to quantify this 
precisely. Even then, the inherent variability between such tests on 
such a small sample in such an approach might not be statistically 
robust enough to confidently determine a small absolute CO2 
emissions impact between the two vehicles.
    As an alternative to comparing new vehicle AC17 test with a 
``baseline'' (described above), in Chapter 5 of the Joint TSD, EPA 
discusses a potential method of more accurately quantifying the credit. 
This involves comparing the efficiencies of individual components 
outside the vehicles, through ``bench'' testing of components 
supplemented by vehicle simulation modeling to relate that component's 
performance to the complete vehicle. EPA believes that such approaches 
may eventually allow the AC17 test to be used as part of a more 
complicated series of test procedures and simulations, to accurately 
quantify the A/C CO2 effect of an individual vehicle's A/C 
technology package. However, EPA believes that this issue is beyond the 
scope of this proposed rule since there are many challenges associated 
with measuring small incremental decreases in fuel consumption and 
CO2 emissions compared to the relatively large overall fuel 
consumption rate and CO2 emissions. The agency does 
encourage comment, including test data, on how the AC17 test could be 
enhanced in order to measure the individual and collective impact of 
different A/C efficiency-improving technologies on individual vehicle 
designs and thus to quantify Efficiency Credits. EPA especially seeks 
comment on a more complex procedure, also discussed in Chapter 5 of the 
Joint TSD, that uses a combination of bench testing of components, 
vehicle simulation models, and dynamometer testing to quantify 
Efficiency Credits. Specifically, the agencies request comment on how 
to define the baseline configuration for bench testing. The agencies 
also request comment on the use of the Lifecycle Climate Performance 
Model (LCCP), or alternatively, the use of an EPA simulation tool to 
convert the test bench results to a change in fuel consumption and 
CO2 emissions.
iii. A/C Efficiency Fuel Consumption Improvement Values in the CAFE 
Program
    As described in section II.F and above, EPA is proposing to use the 
AC17 test as a prerequisite to generating A/C Efficiency Credits 
starting in MY 2017. EPA is proposing, in coordination with NHTSA, for 
the first time under its EPCA authority to allow manufacturers to use 
this same test procedure to generate fuel consumption improvement 
values for purposes of CAFE compliance based on the use of A/C 
efficiency technologies. As described above, the CO2 credits 
would be determined from a comparison of the new vehicle compared to an 
older ``baseline vehicle.'' For CAFE, EPA proposes to convert the total 
CO2 credits due to A/C efficiency improvements from metric 
tons of CO2 to a fleetwide CAFE improvement value. The fuel 
consumption improvement values are presented to give the reader some 
context and explain the relationship between CO2 and fuel 
consumption improvements. The fuel consumption improvement values would 
be the amount of fuel consumption reduction achieved by that vehicle, 
up to a maximum of 0.000563 gallons/mi fuel consumption improvement 
value for cars and a 0.000586 gallons/mi fuel consumption improvement 
value for trucks.\278\ If the difference between the new vehicle and 
baseline results does not demonstrate the full menu-based potential of 
the technology, a partial credit could still be generated. This partial 
credit would be proportional to how far the difference in results was 
from the expected menu-based credit (i.e., the sum of the individual 
technology credits). The table below presents the proposed CAFE fuel 
consumption improvement values for

[[Page 75008]]

each of the efficiency-reducing air conditioning technologies 
considered in this proposal. More detail is provided on the calculation 
of indirect A/C CAFE fuel consumption improvement values in chapter 5 
of the joint TSD. EPA is proposing definitions of each of the 
technologies in the table below which are discussed in Chapter 5 of the 
draft joint TSD to ensure that the air conditioner technology used by 
manufacturers seeking these values corresponds with the technology used 
to derive the fuel consumption improvement values.
---------------------------------------------------------------------------

    \278\ Note that EPA's proposed calculation methodology in 40 CFR 
600.510-12 does not use vehicle-specific fuel consumption 
adjustments to determine the CAFE increase due to the various 
incentives allowed under the proposed program. Instead, EPA would 
convert the total CO2 credits due to each incentive 
program from metric tons of CO2 to a fleetwide CAFE 
improvement value. The fuel consumption values are presented to give 
the reader some context and explain the relationship between 
CO2 and fuel consumption improvements.

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[[Page 75009]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.070


[[Page 75010]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.071

2. Incentive for Electric Vehicles, Plug-in Hybrid Electric Vehicles, 
and Fuel Cell Vehicles
a. Rationale for Temporary Regulatory Incentives for Electric Vehicles, 
Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles
    EPA has identified two vehicle powertrain-fuel combinations that 
have the future potential to transform the light-duty vehicle sector by 
achieving near-zero greenhouse gas (GHG) emissions and oil consumption 
in the longer term, but which face major near-term market barriers such 
as vehicle cost, fuel cost (in the case of fuel cell vehicles), the 
development of low-GHG fuel production and distribution infrastructure, 
and/or consumer acceptance.
     Electric vehicles (EVs) and plug-in hybrid electric 
vehicles (PHEVs) which would operate exclusively or frequently on grid 
electricity that could be produced from very low GHG emission 
feedstocks or processes.
     Fuel cell vehicles (FCVs) which would operate on hydrogen 
that could be produced from very low GHG emissions feedstocks or 
processes.
    As in the 2012-2016 rule, EPA is proposing temporary regulatory 
incentives for the commercialization of EVs, PHEVs, and FCVs. EPA 
believes that these advanced technologies represent potential game-
changers with respect to control of transportation GHG emissions as 
they can combine an efficient vehicle propulsion system with the 
potential to use motor fuels produced from low-GHG emissions feedstocks 
or from fossil feedstocks with carbon capture and sequestration. EPA 
recognizes that the use of EVs, PHEVs, and FCVs in the 2017-2025 
timeframe, in conjunction with the incentives, will decrease the 
overall GHG emissions reductions associated with the program as the 
upstream emissions associated with the generation and distribution of 
electricity are higher than the upstream emissions associated with 
production and distribution of gasoline. EPA accounts for this 
difference in projections of the overall program's impacts and benefits 
(see Section III.F).\279\
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    \279\ Also see the Regulatory Impact Analysis.
---------------------------------------------------------------------------

    The tailpipe GHG emissions from EVs, PHEVs operated on grid 
electricity, and hydrogen-fueled FCVs are zero, and traditionally the 
emissions of the vehicle itself are all that EPA takes into account for 
purposes of compliance with standards set under Clean Air Act section 
202(a). Focusing on vehicle tailpipe emissions has not raised any 
issues for criteria pollutants, as upstream emissions associated with 
production and distribution of the fuel are addressed by comprehensive 
regulatory programs focused on the upstream sources of those emissions. 
At this time, however, there is no such comprehensive program 
addressing upstream emissions of GHGs, and the upstream GHG emissions 
associated with production and distribution of electricity are higher, 
on a national average basis, than the corresponding upstream GHG 
emissions of gasoline or other petroleum based fuels.\280\ In the 
future, if there were a program to comprehensively control upstream GHG 
emissions, then the zero tailpipe levels from these vehicles have the 
potential to contribute to very large GHG reductions, and to transform 
the transportation sector's contribution to nationwide GHG emissions 
(as well as oil consumption). For a discussion of this issue in the 
2012-2016 rule, see 75 FR at 25434-438.
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    \280\ There is significant regional variation with upstream GHG 
emissions associated with electricity production and distribution. 
Based on EPA's eGRID2010 database, comprised of 26 regions, the 
average powerplant GHG emissions rates per kilowatt-hour for those 
regions with the highest GHG emissions rates are about 3 times 
higher than those with the lowest GHG emissions rates. See http://www.epa.gov/cleanenergy/energy-resources/egrid/index.html.
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    EVs and FCVs also represent some of the most significant changes in 
automotive technology in the industry's history.\281\ For example, EVs 
face major consumer barriers such as significantly

[[Page 75011]]

higher vehicle cost and lower range. However, EVs also have attributes 
that could be attractive to some consumers: Lower and more predictable 
fuel price, no need for oil changes or spark plugs, and reducing one's 
personal contribution to local air pollution, climate change, and oil 
dependence.\282\
---------------------------------------------------------------------------

    \281\ A PHEV is not such a big change since, if the owner so 
chooses, it can operate on gasoline.
    \282\ PHEVs and FCVs share many of these same challenges and 
opportunities.
---------------------------------------------------------------------------

    Original equipment manufacturers currently offer two EVs and one 
PHEV in the U.S. market.\283\ Deliveries of the Nissan Leaf EV, which 
has a list price of about $33,000 (before tax credits) and an EPA label 
range of 73 miles, began in December 2010 in selected areas, and total 
sales through October 2011 are about 8000. The luxury Tesla Roadster 
EV, with a list price of $109,000, has been on sale since March 2008 
with cumulative sales of approximately 1500. The Chevrolet Volt PHEV, 
with a list price of about $41,000 and an EPA label all-electric range 
of 35 miles, has sold over 5000 vehicles since it entered the market in 
December 2010 in selected markets. At this time, no original equipment 
manufacturer offers FCVs to the general public except for some limited 
demonstration programs.\284\ Currently, combined EV, PHEV, and FCV 
sales represent about 0.1% of overall light-duty vehicle sales. 
Additional models, such as the Ford Focus EV, the Mitsubishi i EV, and 
the Toyota Prius PHEV, are expected to enter the U.S. market in the 
next few months.
---------------------------------------------------------------------------

    \283\ Smart has also leased approximately 100 Smart ED vehicles 
in the U.S.
    \284\ For example, Honda has leased up to 200 Clarity fuel cell 
vehicles in southern California (see Honda.com) and Toyota has 
announced plans for a limited fuel cell vehicle introduction in 2015 
(see Toyota.com).
---------------------------------------------------------------------------

    The agency remains optimistic about consumer acceptance of EVs, 
PHEVs, and FCVs in the long run, but we believe that near-term market 
acceptance is less certain. One of the most successful new automotive 
powertrain technologies--conventional hybrid electric vehicles like the 
Toyota Prius--illustrates the challenges involved with consumer 
acceptance of new technologies, even those that do not involve vehicle 
attribute tradeoffs. Even though conventional hybrids have now been on 
the U.S. market for over a decade, their market share hovers around 2 
to 3 percent or so \285\ even though they offer higher vehicle range 
than their traditional gasoline vehicle counterparts, involve no 
significant consumer tradeoffs (other than cost), and have reduced 
their incremental cost to a few thousand dollars. The cost and consumer 
tradeoffs associated with EVs, PHEVs, and FCVs are more significant 
than those associated with conventional hybrids. Given the long 
leadtimes associated with major transportation technology shifts, there 
is value in promoting these potential game-changing technologies today 
if we want to retain the possibility of achieving major environmental 
and energy benefits in the future.
---------------------------------------------------------------------------

    \285\ Light-Duty Automotive Technology, Carbon Dioxide 
Emissions, and Fuel Economy Trends: 1975 Through 2010, EPA-420-R-10-
023, November 2010, www.epa.gov/otaq/fetrends.htm.
---------------------------------------------------------------------------

    In terms of the relative relationship between tailpipe and upstream 
fuel production and distribution GHG emissions, EVs, PHEVs, and FCVs 
are very different than conventional gasoline vehicles. Combining 
vehicle tailpipe and fuel production/distribution sources, gasoline 
vehicles emit about 80 percent of these GHG emissions at the vehicle 
tailpipe with the remaining 20 percent associated with ``upstream'' 
fuel production and distribution GHG emissions.\286\ On the other hand, 
vehicles using electricity and hydrogen emit no GHG (or other 
emissions) at the vehicle tailpipe, and therefore all GHG emissions 
associated with powering the vehicle are due to fuel production and 
distribution.\287\ Depending on how the electricity and hydrogen fuels 
are produced, these fuels can have very high fuel production/
distribution GHG emissions (for example, if coal is used with no GHG 
emissions control) or very low GHG emissions (for example, if renewable 
processes with minimal fossil energy inputs are used, or if carbon 
capture and sequestration is used). For example, as shown in the 
Regulatory Impact Analysis, today's Nissan Leaf EV would have an 
upstream GHG emissions value of 161 grams per mile based on national 
average electricity, and a value of 89 grams per mile based on the 
average electricity in California, one of the initial markets for the 
Leaf.
---------------------------------------------------------------------------

    \286\ Fuel production and distribution GHG emissions have 
received much attention because there is the potential for more 
widespread commercialization of transportation fuels that have very 
different GHG emissions characteristics in terms of the relative 
contribution of GHG emissions from the vehicle tailpipe and those 
associated with fuel production and distribution. Other GHG 
emissions source categories include vehicle production, including 
the raw materials used to manufacture vehicle components, and 
vehicle disposal. These categories have not been included in EPA 
motor vehicle emissions regulations for several reasons: These 
categories are less important from an emissions inventory 
perspective, they raise complex accounting questions that go well 
beyond vehicle testing and fuel-cycle analysis, and in general there 
are fewer differences across technologies.
    \287\ The Agency notes that many other fuels currently used in 
light-duty vehicles, such as diesel from conventional oil, ethanol 
from corn, and compressed natural gas from conventional natural gas, 
have tailpipe GHG and fuel production/distribution GHG emissions 
characteristics fairly similar to that of gasoline from conventional 
oil. See 75 FR at 25437. The Agency recognizes that future 
transportation fuels may be produced from renewable feedstocks with 
lower fuel production/distribution GHG emissions than gasoline from 
oil.
---------------------------------------------------------------------------

    Because these upstream GHG emissions values are generally higher 
than the upstream GHG emissions values associated with gasoline 
vehicles, and because there is currently no national program in place 
to reduce GHG emissions from electric powerplants, EPA believes it is 
appropriate to consider the incremental upstream GHG emissions 
associated with electricity production and distribution. But, we also 
think it is appropriate to encourage the initial commercialization of 
EV/PHEV/FCVs as well, in order to retain the potential for game-
changing GHG emissions and oil savings in the long term.
    Accordingly, EPA proposes to provide temporary regulatory 
incentives for EVs, PHEVs (when operated on electricity) and FCVs that 
will be discussed in detail below. EPA recognizes that the use of EVs, 
PHEVs, and FCVs in the 2017-2025 timeframe, in conjunction with the 
incentives, will decrease the overall GHG emissions reductions 
associated with the program as the upstream emissions associated with 
the generation and distribution of electricity are higher than the 
upstream emissions associated with production and distribution of 
gasoline. EPA accounts for this difference in projections of the 
overall program's impacts and benefits (see Section III.F). EPA 
believes that the relatively minor impact on GHG emissions reductions 
in the near term is justified by promoting technologies that have 
significant transportation GHG emissions and oil consumption game-
changing potential in the longer run, and that also face major market 
barriers in entering a market that has been dominated by gasoline 
vehicle technology and infrastructure for over 100 years.
    EPA will review all of the issues associated with upstream GHG 
emissions, including the status of EV/PHEV/FCV commercialization, the 
status of upstream GHG emissions control programs, and other relevant 
factors.
b. MYs 2012-2016 Light-Duty Vehicle Greenhouse Gas Emissions Standards
    The light-duty vehicle greenhouse gas emissions standards for model 
years 2012-2016 provide a regulatory incentive for electric vehicles 
(EVs), fuel cell vehicles (FCVs), and for the electric portion of 
operation of plug-in hybrid

[[Page 75012]]

electric vehicles (PHEVs). See generally 75 FR at 25434-438. This is 
designed to promote advanced technologies that have the potential to 
provide ``game changing'' GHG emissions reductions in the future. This 
incentive is a 0 grams per mile compliance value (i.e., a compliance 
value based on measured vehicle tailpipe GHG emissions) up to a 
cumulative EV/PHEV/FCV production cap threshold for individual 
manufacturers. There is a two-tier cumulative EV/PHEV/FCV production 
cap for MYs 2012-2016: The cap is 300,000 vehicles for those 
manufacturers that sell at least 25,000 EVs/PHEVs/FCVs in MY 2012, and 
the cap is 200,000 vehicles for all other manufacturers. For 
manufacturers that exceed the cumulative production cap over MYs 2012-
2016, compliance values for those vehicles in excess of the cap will be 
based on a full accounting of the net fuel production and distribution 
GHG emissions associated with those vehicles relative to the fuel 
production and distribution GHG emissions associated with comparable 
gasoline vehicles. For an electric vehicle, this accounting is based on 
the vehicle electricity consumption over the EPA compliance tests, 
eGRID2007 national average powerplant GHG emissions factors, and 
multiplicative factors to account for electricity grid transmission 
losses and pre-powerplant feedstock GHG related emissions.\288\ The 
accounting for a hydrogen fuel cell vehicle would be done in a 
comparable manner.
---------------------------------------------------------------------------

    \288\ See 40 CFR 600.113-12(m).
---------------------------------------------------------------------------

    Although EPA also proposed a vehicle incentive multiplier for MYs 
2012-2016, the agency did not finalize a multiplier. At that time, the 
Agency believed that combining the 0 gram per mile and multiplier 
incentives would be excessive.
    The 0 grams per mile compliance value decreases the GHG emissions 
reductions associated with the 2012-2016 standards compared to the same 
standards and no 0 grams per mile compliance value. It is impossible to 
know the precise number of vehicles that will take advantage of this 
incentive in MYs 2012-2016. In the preamble to the final rule, EPA 
projected the decrease in GHG emissions reductions that would be 
associated with a scenario of 500,000 EVs certified with a compliance 
value of 0 grams per mile. This scenario would result in a projected 
decrease of 25 million metric tons of GHG emissions reductions, or less 
than 3 percent of the total projected GHG benefits of the program of 
962 million metric tons. This GHG emissions impact could be smaller or 
larger, of course, based on the actual number of EVs that would certify 
at 0 grams per mile.
    In the preamble to the final rule, EPA stated that it would 
reassess this issue for rulemakings beginning in MY 2017 based on the 
status of advanced vehicle technology commercialization, the status of 
upstream GHG control programs, and other relevant factors.
c. Supplemental Notice of Intent
    In our most recent Supplemental Notice of Intent,\289\ EPA stated 
that: ``EPA intends to propose an incentive multiplier for all electric 
vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell 
vehicles (FCVs) sold in MYs 2017 through 2021. This multiplier approach 
means that each EV/PHEV/FCV would count as more than one vehicle in the 
manufacturer's compliance calculation. EPA intends to propose that EVs 
and FCVs start with a multiplier value of 2.0 in MY 2017, phasing down 
to a value of 1.5 in MY 2021. PHEVs would start at a multiplier value 
of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021. These 
multipliers would be proposed for incorporation in EPA's GHG program * 
* *. As an additional incentive for EVs, PHEVs and FCVs, EPA intends to 
propose allowing a value of 0 g/mile for the tailpipe compliance value 
for EVs, PHEVs (electricity usage) and FCVs for MYs 2017-2021, with no 
limit on the quantity of vehicles eligible for 0 g/mi tailpipe 
emissions accounting. For MYs 2022-2025, 0 g/mi will only be allowed up 
to a per-company cumulative sales cap based on significant penetration 
of these advanced vehicles in the marketplace. EPA intends to propose 
an appropriate cap in the NPRM.''
---------------------------------------------------------------------------

    \289\ 76 Federal Register 48758 (August 9, 2011).
---------------------------------------------------------------------------

d. Proposal for MYs 2017-2025
    EPA is proposing the following temporary regulatory incentives for 
EVs, PHEVs, and FCVs consistent with the discussion in the August 2011 
Supplemental Notice of Intent.
    For MYs 2017 through 2021, EPA is proposing two incentives. The 
first proposed incentive is to allow all EVs, PHEVs (electric 
operation), and FCVs to use a GHG emissions compliance value of 0 grams 
per mile. There would be no cap on the number of vehicles eligible for 
the 0 grams per mile compliance value for MYs 2017 through 2021.
    The second proposed incentive for MYs 2017 through 2021 is a 
multiplier for all EVs, PHEVs, and FCVs, which would allow each of 
these vehicles to ``count'' as more than one vehicle in the 
manufacturer's compliance calculation.\290\ While the Agency rejected a 
multiplier incentive in the MYs 2012-2016 final rule, we are proposing 
a multiplier for MYs 2017-2021 because, while advanced technologies 
were not necessary for compliance in MYs 2012-2016, they are necessary, 
for some manufacturers, to comply with the GHG standards in the MYs 
2022-2025 timeframe. A multiplier for MYs 2017-2021 can also promote 
the initial commercialization of these advanced technologies. In order 
for a PHEV to be eligible for the multiplier incentive, EPA proposes 
that PHEVs be required to be able to complete a full EPA highway test 
(10.2 miles), without using any conventional fuel, or alternatively, 
have a minimum equivalent all-electric range of 10.2 miles as measured 
on the EPA highway cycle. EPA seeks comment on whether this minimum 
range (all-electric or equivalent all-electric) should be lower or 
higher, or whether the multiplier should vary based on range or on 
another PHEV metric such as battery capacity or ratio of electric motor 
power to engine or total vehicle power. The specific proposed 
multipliers are shown in Table III-15.
---------------------------------------------------------------------------

    \290\ In the unlikely case where a PHEV with a low electric 
range might have an overall GHG emissions compliance value that is 
higher than its compliance target, EPA proposes that the automaker 
can choose not to use the multiplier.

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[[Page 75013]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.072

    EPA also requests comments on the merits of providing similar 
multiplier incentives to dedicated and/or dual fuel compressed natural 
gas vehicles.
    For MYs 2022 through 2025, EPA is proposing one incentive--the 0 
grams per mile GHG emissions compliance incentive for EVs, PHEVs 
(electric operation), and FCVs up to a per-company cumulative 
production cap threshold for those model years. EPA is proposing a two-
tier, per-company cap based on cumulative production in prior years, 
consistent with the general approach that was adopted in the rulemaking 
for MYs 2012-2016. For manufacturers that sell 300,000 or more EV/PHEV/
FCVs combined in MYs 2019-2021, the proposed cumulative production cap 
would be 600,000 EV/PHEV/FCVs for MYs 2022-2025. Other automakers would 
have a proposed cumulative production cap of 200,000 EV/PHEV/FCVs in 
MYs 2022-2025.
    This proposed cap design is appropriate as a way to encourage 
automaker investment in potential GHG emissions game-changing 
technologies that face very significant cost and consumer barriers. In 
addition, as with the rulemaking for MYs 2012-2016, EPA believes it is 
important to both recognize the benefit of early leadership in 
commercialization of these technologies, and encourage additional 
manufacturers to invest over time. Manufacturers are unlikely to do so 
if vehicles with these technologies are treated for compliance purposes 
to be no more advantageous than the best conventional hybrid vehicles. 
Finally, we believe that the proposed cap design provides a reasonable 
limit to the overall decrease in program GHG emissions reductions 
associated with the incentives, and EPA is being transparent about 
these GHG emissions impacts (see later in this section and also Section 
III.F).
    EPA recognizes that a central tension in the design of a proposed 
cap relates to certainty and uncertainty with respect to both 
individual automaker caps and the overall number of vehicles that may 
fall under the cap, which determines the overall decrease in GHG 
emissions reductions. A per-company cap as described above would 
provide clear certainty for individual manufacturers at the time of the 
final rule, but would yield uncertainty about how many vehicles 
industry-wide would take advantage of the 0 grams per mile incentive 
and therefore the overall impact on GHG emissions. An alternative 
approach would be an industry-wide cap where EPA would establish a 
finite limit on the total number of vehicles eligible for the 0 grams 
per mile incentive, with a method for allocating this industry-wide cap 
to individual automakers. An industry-wide cap would provide certainty 
with respect to the maximum number of vehicles and GHG emissions impact 
and would reward those automakers who show early leadership. If EPA 
were to make a specific numerical allocation at the time of the final 
rule, automakers would have certainty, but EPA is concerned that we may 
not have sufficient information to make an equitable allocation for a 
timeframe that is over a decade away. If EPA were to adopt an 
allocation formula in the final rule that was dependent on future sales 
(as we are proposing above for the per-company cap), automakers would 
have much less certainty in compliance planning as they would not know 
their individual caps until some point in the future.
    To further assess the merits of an industry-wide cap approach, EPA 
also seeks comment on the following alternative for an industry-wide 
cap. EPA would place an industry-wide cumulative production cap of 2 
million EV/PHEV/FCVs eligible for the 0 grams per mile incentive in MYs 
2022-2025. EPA has chosen 2 million vehicles because, as shown below, 
we project that this limits the maximum decrease in GHG emissions 
reductions to about 5 percent of total program GHG savings. EPA would 
allocate this 2 million vehicle cap to individual automakers in 
calendar year 2022 based on cumulative EV/PHEV/FCV sales in MYs 2019-
2021, i.e., if an automaker sold X percent of industry-wide EV/PHEV/FCV 
sales in MYs 2019-2021, that automaker would get X percent of the 2 
million industry-wide cumulative production cap in MYs 2022-2025 (or 
possibly somewhat less than X percent, if EPA were to reserve some 
small volumes for those automakers that sold zero EV/PHEV/FCVs in MYs 
2019-2021).
    For both the proposed per-company cap and the alternative industry-
wide cap, EPA proposes that, for production beyond the cumulative 
vehicle production cap for a given manufacturer in MY 2022 and later, 
compliance values would be calculated according to a methodology that 
accounts for the full net increase in upstream GHG emissions relative 
to that of a comparable gasoline vehicle. EPA also asks for comment on 
various approaches for phasing in from a 0 gram per mile value to a 
full net increase value, e.g., an interim period when the compliance 
value might be one-half of the net increase.
    EPA also seeks comments on whether any changes should be made for 
MYs 2012-2016, i.e., whether the compliance value for production beyond 
the cap should be one-half of the net increase in upstream GHG 
emissions, or whether the current cap for MYs 2012-2016 should be 
removed.
    EPA is not proposing any multiplier incentives for MYs 2022 through 
2025. EPA believes that the 0 gram per mile compliance value, with 
cumulative

[[Page 75014]]

vehicle production cap, is a sufficient incentive for MYs 2022-2025.
    One key issue here is the appropriate electricity upstream GHG 
emissions factor or rate to use in future projections of EV/PHEV 
emissions based on the net upstream approach. In the following example, 
we use a 2025 nationwide average electricity upstream GHG emissions 
rate (powerplant plus feedstock extraction, transportation, and 
processing) of 0.574 grams GHG/watt-hour, based on simulations with the 
EPA Office of Atmospheric Program's Integrated Planning Model 
(IPM).\291\ For the example below, EPA is using a projected national 
average value from the IPM model, but EPA recognizes that values 
appropriate for future vehicle use may be higher or lower than this 
value. EPA is considering running the IPM model with a more robust set 
of vehicle and vehicle charging-specific assumptions to generate a 
better electricity upstream GHG emissions factor for EVs and PHEVs for 
our final rulemaking, and, at minimum, intends to account for the 
likely regional sales variation for initial EV/PHEV/FCVs, and different 
scenarios for the relative frequency of daytime and nighttime charging. 
EPA seeks comment on whether there are additional factors that we 
should try to include in the IPM modeling for the final rulemaking.
---------------------------------------------------------------------------

    \291\ Technical Support Document, Chapter 4.
---------------------------------------------------------------------------

    EPA proposes a 4-step methodology for calculating the GHG emissions 
compliance value for vehicle production in excess of the cumulative 
production cap for an individual automaker. For example, for an EV in 
MY 2025, this methodology would include the following steps and 
calculations:
     Measuring the vehicle electricity consumption in watt-
hours/mile over the EPA city and highway tests (for example, a midsize 
EV in 2025 might have a 2-cycle test electricity consumption of 230 
watt-hours/mile)
     Adjusting this watt-hours/mile value upward to account for 
electricity losses during electricity transmission (dividing 230 watt-
hours/mile by 0.93 to account for grid/transmission losses yields a 
value of 247 watt-hours/mile)
     Multiplying the adjusted watt-hours/mile value by a 2025 
nationwide average electricity upstream GHG emissions rate of 0.574 
grams/watt-hour at the powerplant (247 watt-hours/mile multiplied by 
0.574 grams GHG/watt-hour yields 142 grams/mile)
     Subtracting the upstream GHG emissions of a comparable 
midsize gasoline vehicle of 39 grams/mile \292\ to reflect a full net 
increase in upstream GHG emissions (142 grams/mile for the EV minus 39 
grams/mile for the gasoline vehicle yields a net increase and EV 
compliance value of 103 grams/mile).\293\
---------------------------------------------------------------------------

    \292\ A midsize gasoline vehicle with a footprint of 46 square 
feet would have a MY 2025 GHG target of about 140 grams/mile; 
dividing 8887 grams CO2/gallon of gasoline by 140 grams/
mile yields an equivalent fuel economy level of 63.5 mpg; and 
dividing 2478 grams upstream GHG/gallon of gasoline by 63.5 mpg 
yields a midsize gasoline vehicle upstream GHG value of 39 grams/
mile. The 2478 grams upstream GHG/gallon of gasoline is calculated 
from 21,546 grams upstream GHG/million Btu (EPA value for future 
gasoline based on DOE's GREET model modified by EPA standards and 
data; see docket memo to MY 2012-2016 rulemaking titled 
``Calculation of Upstream Emissions for the GHG Vehicle Rule'') and 
multiplying by 0.115 million Btu/gallon of gasoline.
    \293\ Manufacturers can utilize alternate calculation 
methodologies if shown to yield equivalent or superior results and 
if approved in advance by the Administrator.
---------------------------------------------------------------------------

    The full accounting methodology for FCVs and the portion of PHEV 
operation on grid electricity would use this same approach. The 
proposed regulations contain EPA's proposed method to determine the 
compliance value for PHEVs, and EPA proposes to develop a similar 
methodology for FCVs if and when the need arises.\294\ Given the 
uncertainty about how hydrogen would be produced, if and when it were 
used as a transportation fuel, EPA seeks comment on projections for the 
fuel production and distribution GHG emissions associated with hydrogen 
production for various feedstocks and processes.
---------------------------------------------------------------------------

    \294\ 40 CFR 600.113-12(m).
---------------------------------------------------------------------------

    EPA is fully accounting for the upstream GHG emissions associated 
with all electricity used by EVs and PHEVs (and any hydrogen used by 
FCVs), both in our regulatory projections of the impacts and benefits 
of the program, and in all GHG emissions inventory accounting.
    EPA seeks public comment on the proposed incentives for EVs, PHEVs, 
and FCVs described above.
e. Projection of Impact on GHG Emissions Reductions Due to Incentives
    EPA believes it is important to project the impact on GHG emissions 
that will be associated with the proposed incentives (both 0 grams per 
mile and the multiplier) for EV/PHEV/FCVs over the MYs 2017-2025 
timeframe. Since it is impossible to know precisely how many EV/PHEV/
FCVs will be sold in the MYs 2017-2025 timeframe that will utilize the 
proposed incentives, EPA presents projections for two scenarios: (1) 
The number of EV/PHEV/FCVs that EPA's OMEGA technology and cost model 
predicts based exclusively on its projections for the most cost-
effective way for the industry to meet the proposed standards, and (2) 
a scenario with a greater number of EV/PHEV/FCVs, based not only on 
compliance with the proposed GHG and CAFE standards, but other factors 
such as the proposed cumulative production caps and manufacturer 
investments. For this analysis, EPA assumes that EVs and PHEVs each 
account for 50 percent of all EV/PHEV/FCVs. EPA seeks comment on 
whether there are other scenarios which should be evaluated for this 
purpose in the final rule.

[[Page 75015]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.073

     
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    \295\ The number of metric tons represents the number of 
additional tons that would be reduced if the standards stayed the 
same and there was no 0 gram per mile compliance value.
    \296\ The percentage change represents the ratio of the 
cumulative decrease in GHG emissions reductions from the prior 
column to the total cumulative GHG emissions reductions associated 
with the proposed standards and the proposed 0 gram per mile 
compliance value.
---------------------------------------------------------------------------

    EPA projects that the cumulative GHG emissions savings of the 
proposed MYs 2017-2025 standards, on a model year lifetime basis, is 
approximately 2 billion metric tons. Table III-16 projects that the 
likely decrease in cumulative GHG emissions reductions due to the EV/
PHEV/FCV incentives for MYs 2017-2025 vehicles is in the range of 80 to 
110 million metric tons, or about 4 to 5 percent.
    It is important to note that the above projection of the impact of 
the EV/PHEV/FCV incentives on the overall program GHG emissions 
reductions assumes that there would be no change to the standard even 
if the EV 0 gram per mile incentive were not in effect, i.e., that EPA 
would propose exactly the same standard if the 0 gram per mile 
compliance value were not allowed for any EV/PHEV/FCVs. While EPA has 
not analyzed such a scenario, it is clear that not allowing a 0 gram 
per mile compliance value would change the technology mix and cost 
projected for the proposed standard.
    It is also important to note that the projected impact on GHG 
emissions reductions in the above table are based on the 2025 
nationwide average electricity upstream GHG emissions rate (powerplant 
plus feedstock) of 0.574 grams GHG/watt-hour discussed above (based on 
simulations with the EPA's Integrated Planning Model (IPM) for 
powerplants in 2025, and a 1.06 factor to account for feedstock-related 
GHG emissions).
    EPA recognizes two factors which could significantly reduce the 
electricity upstream GHG emissions factor by calendar year 2025. First, 
there is a likelihood that early EV/PHEV/FCV sales will be much more 
concentrated in parts of the country with lower electricity GHG 
emissions rates and much less concentrated in regions with higher 
electricity GHG emissions rates. This has been the case with sales of 
hybrid vehicles, and is likely to be more so with EVs in particular. 
Second, there is the possibility of a future comprehensive program 
addressing upstream emissions of GHGs from the generation of 
electricity. Other factors which could also help in this regard include 
technology innovation and lower prices for some powerplant fuels such 
as natural gas.
    On the other hand, EPA also recognizes factors which could increase 
the appropriate electricity upstream GHG emissions factor in the 
future, such as a consideration of marginal electricity demand rather 
than average demand and use of high-power charging. The possibility 
that EVs won't displace gasoline vehicle use on a 1:1 basis (i.e., 
multi-vehicle households may use EVs for more shorter trips and fewer 
longer trips, which could lead to lower overall travel for typical EVs 
and higher overall travel for gasoline vehicles) could also reduce the 
overall GHG emissions benefits of EVs.
    EPA seeks comment on information relevant to these and other 
factors which could both decrease or increase the proper electricity 
upstream GHG emissions factor for calendar year 2025 modeling.

[[Page 75016]]

3. Incentives for ``Game-Changing'' Technologies Including Use of 
Hybridization and Other Advanced Technologies for Full-Size Pickup 
Trucks
    As explained in section II. C above, the agencies recognize that 
the standards under consideration for MY 2017-2025 will be challenging 
for large trucks, including full size pickup trucks that are often used 
for commercial purposes and have generally higher payload and towing 
capabilities, and cargo volumes than other light-duty vehicles. In 
Section II.C and Chapter 2 of the joint TSD, EPA and NHTSA describe how 
the slope of the truck curve has been adjusted compared to the 2012-
2016 rule to reflect these disproportionate challenges. In Section 
III.B, EPA describes the progression of the truck standards. In this 
section, EPA describes a proposed incentive for full size pickup 
trucks, proposed by EPA under both section 202 (a) of the CAA and 
section 32904 (c) of EPCA, to incentivize advanced technologies on this 
class of vehicles. This incentive would be in the form of credits under 
the EPA GHG program, and fuel consumption improvement values 
(equivalent to EPA's credits) under the CAFE program.
    The agencies' goal is to incentivize the penetration into the 
marketplace of ``game changing'' technologies for these pickups, 
including their hybridization. For that reason, EPA is proposing 
credits for manufacturers that hybridize a significant quantity of 
their full size pickup trucks, or use other technologies that 
significantly reduce CO2 emissions and fuel consumption. 
This proposed credit would be available on a per-vehicle basis for mild 
and strong HEVs, as well as for use of other technologies that 
significantly improve the efficiency of the full sized pickup class. As 
described in section II.F. and III.B.10, EPA, in coordination with 
NHTSA, is also proposing that manufacturers be able to include ``fuel 
consumption improvement values'' equivalent to EPA CO2 
credits in the CAFE program. The gallon per mile values equivalent to 
EPA proposed CO2 credits are also provided below, in 
addition to the proposed CO2 credits.\297\ These credits and 
fuel consumption improvement values provide the incentive to begin 
transforming this challenged category of vehicles toward use of the 
most advanced technologies.
---------------------------------------------------------------------------

    \297\ Note that EPA's proposed calculation methodology in 40 CFR 
600.510-12 does not use vehicle-specific fuel consumption 
adjustments to determine the CAFE increase due to the various 
incentives allowed under the proposed program. Instead, EPA would 
convert the total CO2 credits due to each incentive 
program from metric tons of CO2 to a fleetwide CAFE 
improvement value. The fuel consumption values are presented to give 
the reader some context and explain the relationship between 
CO2 and fuel consumption improvements.
---------------------------------------------------------------------------

    Access to this credit is conditioned on a minimum penetration of 
the technologies in a manufacturer's full size pickup truck fleet. The 
proposed penetration rates can be found in Table 5-26 in the TSD. EPA 
is seeking comment on these penetration rates and how they should be 
applied to a manufacturer's truck fleet.
    To ensure its use for only full sized pickup trucks, EPA is 
proposing a specific definition for a full sized pickup truck based on 
minimum bed size and minimum towing capability. The specifics of this 
proposed definition can be found in Chapter 5 of the draft joint TSD 
(see Section 5.3.1) and in the draft regulations at 86.1866-12(e). This 
proposed definition is meant to ensure that the larger pickup trucks 
which provide significant utility with respect to payload and towing 
capacity as well as open beds with large cargo capacity are captured by 
the definition, while smaller pickup trucks which have more limited 
hauling, payload and/or towing are not covered by the proposed 
definition. For this proposal, a full sized pickup truck would be 
defined as meeting requirements 1 and 2, below, as well as either 
requirement 3 or 4, below:
    1. The vehicle must have an open cargo box with a minimum width 
between the wheelhouses of 48 inches measured as the minimum lateral 
distance between the limiting interferences (pass-through) of the 
wheelhouses. The measurement would exclude the transitional arc, local 
protrusions, and depressions or pockets, if present.\298\ An open cargo 
box means a vehicle where the cargo bed does not have a permanent roof 
or cover. Vehicles sold with detachable covers are considered ``open'' 
for the purposes of these criteria.
---------------------------------------------------------------------------

    \298\ This dimension is also known as dimension W202 as defined 
in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    2. Minimum open cargo box length of 60 inches defined by the lesser 
of the pickup bed length at the top of the body (defined as the 
longitudinal distance from the inside front of the pickup bed to the 
inside of the closed endgate; this would be measured at the height of 
the top of the open pickup bed along vehicle centerline and the pickup 
bed length at the floor) and the pickup bed length at the floor 
(defined as the longitudinal distance from the inside front of the 
pickup bed to the inside of the closed endgate; this would be measured 
at the cargo floor surface along vehicle centerline).\299\
---------------------------------------------------------------------------

    \299\ The pickup body length at the top of the body is also 
known as dimension L506 in Society of Automotive Engineers Procedure 
J1100. The pickup body length at the floor is also known as 
dimension L505 in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    3. Minimum Towing Capability--the vehicle must have a GCWR (gross 
combined weight rating) minus GVWR (gross vehicle weight rating) value 
of at least 5,000 pounds.\300\
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    \300\ Gross combined weight rating means the value specified by 
the vehicle manufacturer as the maximum weight of a loaded vehicle 
and trailer, consistent with good engineering judgment. Gross 
vehicle weight rating means the value specified by the vehicle 
manufacturer as the maximum design loaded weight of a single 
vehicle, consistent with good engineering judgment. Curb weight is 
defined in 40 CFR 86.1803, consistent with the provisions of 40 CFR 
1037.140.
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    4. Minimum Payload Capability--the vehicle must have a GVWR (gross 
vehicle weight rating) minus curb weight value of at least 1,700 
pounds.
    As discussed above, this proposed definition is intend to cover the 
larger pickup trucks sold in the U.S. today (and for 2017 and later) 
which have the unique attributes of an open bed, and larger towing and/
or payload capacity. This proposed incentive will encourage the 
penetration of advanced, low CO2 technologies into this 
market segment. The proposed definition would exclude a number of 
smaller-size pickup trucks sold in the U.S. today (examples are the 
Dodge Dakota, Nissan Frontier, Chevrolet Colorado, Toyota Tacoma and 
Ford Ranger). These vehicles generally have smaller boxes (and thus 
smaller cargo capacity), and lower payload and towing ratings. EPA is 
aware that some configurations of these smaller pickups trucks can 
offer towing capacity similar to the larger pickups. As discussed in 
the draft Joint TSD Section 5.3.1, EPA is seeking comment on expanding 
the scope of this credit to somewhat smaller pickups (with a minimum 
distance between the wheel wells of 42 inches, but still with a minimum 
box length of 60 inches), provided they have the towing capabilities of 
the larger full-size trucks (for example a minimum towing capacity of 
6,000 pounds). EPA believes this could incentivize advanced 
technologies (such as HEVs) on pickups which offer some of the utility 
of the larger vehicles, but overall have lower CO2 emissions 
due to the much lighter mass of the vehicle. Providing an advanced 
technology incentive credit for a vehicle which offers consumers much 
of the utility of a larger pickup truck but with overall lower 
CO2 performance would promote the overall objective of the 
proposed standards.

[[Page 75017]]

    EPA proposes that mild HEV pickup trucks would be eligible for a 
per-truck 10 g/mi CO2 credit (equal to 0.0011 gal/mi for a 
25 mpg truck) during MYs 2017-2021 if the mild HEV technology is used 
on a minimum percentage of a company's full sized pickups. That minimum 
percentage would be 30 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 80 percent of 
production in MY 2021.
    EPA is also proposing that strong HEV pickup trucks would be 
eligible for a per-truck 20 g/mi CO2 credit (equal to 0.0023 
gal/mi for a 25 mpg truck) during MYs 2017-2025 if the strong HEV 
technology is used on a minimum percentage of a company's full sized 
pickups. That minimum percentage would be 10 percent of a company's 
full sized pickup production in each year over the model years 2017-
2025.
    To ensure that the hybridization technology used by manufacturers 
seeking one of these credits meets the intent behind the incentives, 
EPA is proposing very specific definitions of what qualifies as a mild 
and a strong HEV for these purposes. These definitions are described in 
detail in Chapter 5 of the draft joint TSD (see section 5.3.3).
    Because there are other technologies besides mild and strong 
hybrids which can significantly reduce GHG emissions and fuel 
consumption in pickup trucks, EPA is also proposing performance-based 
incentive credits, and equivalent fuel consumption improvement values 
for CAFE, for full size pickup trucks that achieve an emission level 
significantly below the applicable CO2 target.\301\ EPA 
proposes that this credit be either 10 g/mi CO2 (equivalent 
to 0.0011 gal/mi for the CAFE program) or 20 g/mi CO2 
(equivalent to 0.0023 gal/mi for the CAFE program) for pickups 
achieving 15 percent or 20 percent, respectively, better CO2 
than their footprint based target in a given model year. Because the 
footprint target curve has been adjusted to account for A/C related 
credits, the CO2 level to be compared with the target would 
also include any A/C related credits generated by the vehicles. EPA 
provides further details on this performance-based incentive in Chapter 
5 of the draft joint TSD (see Section 5.3). The 10 g/mi (equivalent to 
0.0011 gal/mi) performance-based credit would be available for MYs 2017 
to 2021 and a vehicle meeting the requirements would receive the credit 
until MY 2021 unless its CO2 level or fuel consumption 
increases. The 10 g/mi credit is not available after 2021 because the 
post-2021 standards quickly overtake a 15% overcompliance. Earlier in 
the program, an overcompliance lasts for more years, making the credit/
value appropriate for a longer period. The 20 g/mi CO2 
(equivalent to 0.0023 gal/mi) performance-based credit would be 
available for a maximum of 5 consecutive years within the model years 
of 2017 to 2025 after it is first eligible, provided its CO2 
level and fuel consumption does not increase. Subsequent redesigns can 
qualify for the credit again. The credits would begin in the model year 
of introduction, and (as noted) could not extend past MY 2021 for the 
10 g/mi credit (equivalent to 0.0011 gal/mi) and MY 2025 for the 20 g/
mi credit (equivalent to 0.0023 gal/mi).
---------------------------------------------------------------------------

    \301\ The 15 and 20 percent thresholds would be based on 
CO2 performance compared to the applicable CO2 
vehicle footprint target for both CO2 credits and 
corresponding CAFE fuel consumption improvement values. As with A/C 
and off-cycle credits, EPA would convert the total CO2 
credits due to the pick-up incentive program from metric tons of 
CO2 to a fleetwide equivalent CAFE improvement value.
---------------------------------------------------------------------------

    As with the HEV-based credit, the performance-based credit/value 
requires that the technology be used on a minimum percentage of a 
manufacturer's full-size pickup trucks. That minimum percentage for the 
10 g/mi GHG credit (equivalent to 0.0011 gal/mi fuel consumption 
improvement value) would be 15 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 40 percent of 
production in MY 2021. The minimum percentage for the 20 g/mi credit 
(equivalent to 0.0011 gal/mi fuel consumption improvement value) would 
be 10 percent of a company's full sized pickup production in each year 
over the model years 2017-2025. These minimum percentages are set to 
encourage significant penetration of these technologies, leading to 
long-term market acceptance.
    Importantly, the same vehicle could not receive credits (or 
equivalent fuel consumption improvement values) under both the HEV and 
the performance-based approaches. EPA requests comment on all aspects 
of this proposed pickup truck incentive credit, including the proposed 
definitions for full sized pickup truck and mild and strong HEV.
4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel Compressed 
Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles for GHG 
Emissions Compliance
a. Greenhouse Gas Emissions
i. Introduction
    This section addresses proposed approaches for determining the 
compliance values for greenhouse gas (GHG) emissions for those vehicles 
that can use two different fuels, typically referred to as dual fuel 
vehicles under the CAFE program. Three specific technologies are 
addressed: Plug-in hybrid electric vehicles (PHEVs), dual fuel 
compressed natural gas (CNG) vehicles, and ethanol flexible fuel 
vehicles (FFVs).\302\ EPA's underlying principle is to base compliance 
values on demonstrated vehicle tailpipe CO2 emissions 
performance. The key issue with vehicles that can use more than one 
fuel is how to weight the operation (and therefore GHG emissions 
performance) on the two different fuels. EPA proposes to do this on a 
technology-by-technology basis, and the sections below will explain the 
rationale for choosing a particular approach for each vehicle 
technology.
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    \302\ EPA recognizes that other vehicle technologies may be 
introduced in the future that can use two (or more) fuels. For 
example, the original FFVs were designed for up to 85% methanol/15% 
gasoline, rather than the 85% ethanol/15% gasoline for which current 
FFVs are designed. EPA has regulations that address methanol 
vehicles (both FFVs and dedicated vehicles), and, for GHG emissions 
compliance in MYs 2017-2025, EPA is proposing to treat methanol 
vehicles in the same way as ethanol vehicles.
---------------------------------------------------------------------------

    EPA is proposing no changes to the tailpipe GHG emissions 
compliance approach for dedicated vehicles, i.e., those vehicles that 
can use only one fuel. As finalized for MY 2016 and later vehicles in 
the 2012-2016 rule, tailpipe CO2 emissions compliance levels 
are those values measured over the EPA 2-cycle city/highway tests.\303\ 
EPA is proposing provisions for how and when to also account for the 
upstream fuel production and distribution related GHG emissions 
associated with electric vehicles, fuel cell vehicles, and the electric 
portion of plug-in hybrid electric vehicles, and these provisions are 
discussed in Section III.C.2 above.
---------------------------------------------------------------------------

    \303\ For dedicated alternative fuel vehicles. See 75 at FR 
25434.
---------------------------------------------------------------------------

ii. Plug-In Hybrid Electric Vehicles
    PHEVs can operate both on an on-board battery that can be charged 
by wall electricity from the grid, and on a conventional liquid fuel 
such as gasoline. Depending on how these vehicles are fueled and 
operated, PHEVs

[[Page 75018]]

could operate exclusively on grid electricity, exclusively on the 
conventional fuel, or any combination of both fuels. EPA can determine 
the CO2 emissions performance when operated on the battery 
and on the conventional fuel. But, in order to generate a single 
CO2 emissions compliance value, EPA must adopt an approach 
for determining the appropriate weighting of the CO2 
emissions performance on grid electricity and the CO2 
emissions performance on gasoline.
    EPA is proposing no changes to the Society of Automotive Engineers 
(SAE) cycle-specific utility factor approach for PHEV compliance and 
label emissions calculations first adopted by EPA in the joint EPA/DOT 
final rulemaking establishing new fuel economy and environment label 
requirements for MY 2013 and later vehicles.\304\ This utility factor 
approach is based on several key assumptions. One, PHEVs are designed 
such that the first mode of operation is all-electric drive or electric 
assist. Every PHEV design with which EPA is familiar is consistent with 
this assumption. Two, PHEVs will be charged once per day. While this 
critical assumption is unlikely to be met by every PHEV driver every 
day, EPA believes that a large majority of PHEV owners will be highly 
motivated to re-charge as frequently as possible, both because the 
owner has paid a considerably higher initial vehicle cost to be able to 
operate on grid electricity, and because electricity is considerably 
cheaper, on a per mile basis, than gasoline. Three, it is reasonable to 
assume that future PHEV drivers will retain driving profiles similar to 
those of past drivers on which the utility factors were based. More 
detailed information on the development of this utility factor approach 
can be obtained from the Society of Automotive Engineers.\305\ EPA will 
continue to reevaluate the appropriateness of these assumptions over 
time.
---------------------------------------------------------------------------

    \304\ 76 FR 39504-39505 (July 6, 2011) and 40 CFR 600.116-12(b).
    \305\ http://www.SAE.org, specifically SAE J2841 ``Utility 
Factor Definitions for Plug-In Hybrid Electric Vehicles Using Travel 
Survey Data,'' September 2010.
---------------------------------------------------------------------------

    Based on this approach, and PHEV-specific specifications such as 
all-electric drive or equivalent all-electric range, the cycle-specific 
utility factor methodology yields PHEV-specific values for projected 
average percent of operation on grid electricity and average percent of 
operation on gasoline over both the city and highway test cycles. For 
example, the Chevrolet Volt PHEV, the only original equipment 
manufacturer (OEM) PHEV in the U.S. market today, which has an all-
electric range of 35 miles on EPA's fuel economy label, has city and 
highway cycle utility factors of about 0.65, meaning that the average 
Volt driver is projected to drive about 65 percent of the miles on grid 
electricity and about 35 percent of the miles on gasoline. Each PHEV 
will have its own utility factor.
    Based on this utility factor approach, EPA calculates the GHG 
emissions compliance value for an individual PHEV as the sum of (1) the 
GHG emissions value for electric operation (either 0 grams per mile or 
a non-zero value reflecting the net upstream GHG emissions accounting 
depending on whether automaker EV/PHEV/FCV production is below or above 
its cumulative production cap as discussed in Section III.C.2 above) 
multiplied by the utility factor, and (2) the tailpipe CO2 
emissions value on gasoline multiplied by (1 minus the utility factor).
iii. Dual Fuel Compressed Natural Gas Vehicles
    Dual fuel CNG vehicles operate on either compressed natural gas or 
gasoline, but not both at the same time, and have separate tanks for 
the two fuels.\306\ There are no OEM dual fuel CNG vehicles in the U.S. 
market today, but some manufacturers have expressed interest in 
bringing them to market during the rulemaking time frame. Under current 
EPA regulations through MY 2015, GHG emissions compliance values for 
dual fuel CNG vehicles are based on a methodology that provides 
significant GHG emissions incentives equivalent to the ``CAFE credit'' 
approach for dual and flexible fuel vehicles. For MY 2016, current EPA 
regulations utilize a methodology based on demonstrated vehicle 
emissions performance and real world fuels usage, similar to that for 
ethanol flexible fuel vehicles discussed below.
---------------------------------------------------------------------------

    \306\ EPA considers ``bi-fuel'' CNG vehicles to be those 
vehicles that can operate on a mixture of CNG and gasoline. Bi-fuel 
vehicles would not be eligible for this treatment, since they are 
not designed to allow the use of CNG only.
---------------------------------------------------------------------------

    EPA proposes to develop a new approach for dual fuel CNG vehicle 
GHG emissions compliance that is very similar to the utility factor 
approach developed and described above for PHEVs, and for this new 
approach to take effect with MY 2016. As with PHEVs, EPA believes that 
owners of dual fuel CNG vehicles will preferentially seek to refuel and 
operate on CNG fuel as much as possible, both because the owner paid a 
much higher price for the dual fuel capability, and because CNG fuel is 
considerably cheaper than gasoline on a per mile basis. EPA notes that 
there are some relevant differences between dual fuel CNG vehicles and 
PHEVs, and some of these differences might weaken the case for using 
utility factors for dual fuel CNG vehicles. For example, a dual fuel 
CNG vehicle might be able to run on gasoline when both fuels are 
available on board (depending on how the vehicle is designed), it may 
be much more inconvenient for some private dual fuel CNG vehicle owners 
to fuel every day relative to PHEVs, and there are many fewer CNG 
refueling stations than electrical charging facilities.\307\ On the 
other hand, there are differences that could strengthen the case as 
well, e.g., many dual fuel CNG vehicles will likely have smaller 
gasoline tanks given the expectation that gasoline will be used only as 
an ``emergency'' fuel, and it may be easier for a dual fuel CNG vehicle 
to be refueled during the day than a PHEV (which is most conveniently 
refueled at night with a home charging unit).
---------------------------------------------------------------------------

    \307\ EPA assumes that most PHEV owners will charge at home with 
electrical charging equipment that they purchase and install for 
their own use.
---------------------------------------------------------------------------

    Taking all these considerations into account, EPA believes that the 
merit of using a utility factor-based approach for dual fuel CNG 
vehicles is similar to that of doing so for PHEVs, and we propose to 
develop a similar methodology for dual fuel CNG vehicles. For example, 
applying the current SAE fleet utility factor approach developed for 
PHEVs to a dual fuel CNG vehicle with a 150-mile CNG range would result 
in a compliance assumption of about 95 percent operation on CNG and 
about 5 percent operation on gasoline.\308\ EPA is proposing to 
directly extend the PHEV utility factor methodology to dual fuel CNG 
vehicles, using the same assumptions about daily refueling. EPA invites 
comment on this proposal, including the appropriateness of the 
assumptions described above for dual fuel CNG vehicles.
---------------------------------------------------------------------------

    \308\ See SAE J2841 ``Utility Factor Definitions for Plug-In 
Hybrid Electric Vehicles Using Travel Survey Data,'' September 2010, 
available at http://www.SAE.org, which we are proposing to use for 
dual fuel CNG vehicles as well.
---------------------------------------------------------------------------

    Further, for MYs 2012-2015, EPA is also proposing to allow the 
option, at the manufacturer's discretion, to use the proposed utility 
factor-based methodology for MYs 2016-2025 discussed above. The 
rationale for providing this option is that some manufacturers are 
likely to reach the maximum allowable GHG emissions credits (based on 
the statutory CAFE credits) through their production of

[[Page 75019]]

ethanol FFVs, and therefore would not be able to gain any GHG emissions 
compliance benefit even if they produced dual fuel CNG vehicles that 
demonstrated superior GHG emissions performance.
    In determining eligibility for the utility factor approach, EPA may 
consider placing additional constraints on the designs of dual fuel CNG 
vehicles to maximize the likelihood that consumers will routinely seek 
to use CNG fuel. Options include, but are not limited to, placing a 
minimum value on CNG tank size or CNG range, a maximum value on 
gasoline tank size or gasoline range, a minimum ratio of CNG-to-
gasoline range, and requiring an onboard control system so that a dual 
fuel CNG vehicle is only able to access the gasoline fuel tank if the 
CNG tank is empty. EPA seeks comments on the merits of these additional 
eligibility constraints for dual fuel CNG vehicles.
iv. Ethanol Flexible Fuel Vehicles
    Ethanol FFVs can operate on E85 (a blend of 15 percent gasoline and 
85 percent ethanol, by volume), gasoline, or any blend of the two. 
There are many ethanol FFVs in the market today.
    In the final rulemaking for MY 2012-2016, EPA promulgated 
regulations for MYs 2012-2015 ethanol FFVs that provided significant 
GHG emissions incentives equivalent to the long-standing ``CAFE 
credits'' for ethanol FFVs under EPCA, since many manufacturers had 
relied on the availability of these credits in developing their 
compliance strategies.\309\ Beginning in MY 2016, EPA ended the GHG 
emissions compliance incentives and adopted a methodology based on 
demonstrated vehicle emissions performance. This methodology 
established a default value assumption where ethanol FFVs are operated 
100 percent of the time on gasoline, but allows manufacturers to use a 
relative E85 and gasoline vehicle emissions performance weighting based 
either on national average E85 and gasoline sales data, or 
manufacturer-specific data showing the percentage of miles that are 
driven on E85 vis-[agrave]-vis gasoline for that manufacturer's ethanol 
FFVs.\310\ EPA is not proposing any changes to this methodology for MYs 
2017-2025.
---------------------------------------------------------------------------

    \309\ 75 FR at 25432-433.
    \310\ 75 FR at 25433-434.
---------------------------------------------------------------------------

    EPA believes there is a compelling rationale for not adopting a 
utility factor-based approach, as discussed above for PHEVs and dual 
fuel CNG vehicles, for ethanol FFVs. Unlike with PHEVs and dual fuel 
CNG vehicles, owners of ethanol FFVs do not pay any more for the E85 
fueling capability. Unlike with PHEVs and dual fuel CNG vehicles, 
operation on E85 is not cheaper than gasoline on a per mile basis, it 
is typically the same or somewhat more expensive to operate on E85. 
Accordingly, there is no direct economic motivation for the owner of 
ethanol FFVs to seek E85 refueling, and in some cases there is an 
economic disincentive. Because E85 has a lower energy content per 
gallon than gasoline, an ethanol FFV will have a lower range on E85 
than on gasoline, which provides an additional disincentive. The data 
confirm that, on a national average basis in 2008, less than one 
percent of ethanol FFVs used E85 fuel.\311\
---------------------------------------------------------------------------

    \311\ 75 FR 14762 (March 26, 2010).
---------------------------------------------------------------------------

    If, in the future, this situation were to change (e.g., if E85 were 
less expensive, on a per mile basis), then EPA could reconsider its 
approach to this issue.
b. Procedures for CAFE Calculations for MY 2020 and Later
    49 U.S.C. 32905 specifies how the fuel economy of dual fuel 
vehicles is to be calculated for the purposes of CAFE through the 2019 
model year. The basic calculation is a 50/50 harmonic average of the 
fuel economy for the alternative fuel and the conventional fuel, 
irrespective of the actual usage of each fuel. In addition, the fuel 
economy value for the alternative fuel is significantly increased by 
dividing by 0.15 in the case of CNG and ethanol and by using a 
petroleum equivalency factor methodology that yields a similar overall 
increase in the CAFE mpg value for electricity.\312\ In a related 
provision, 49 U.S.C. 32906, the amount by which a manufacturer's CAFE 
value (for domestic passenger cars, import passenger cars, or light-
duty trucks) can be improved by the statutory incentive for dual fuel 
vehicles is limited by EPCA to 1.2 mpg through 2014, and then gradually 
reduced until it is phased out entirely starting in model year 
2020.\313\ With the expiration of the special calculation procedures in 
49 U.S.C. 32905 for dual fueled vehicles, the CAFE calculation 
procedures for model years 2020 and later vehicles need to be set under 
the general provisions authorizing EPA to establish testing and 
calculation procedures.\314\
---------------------------------------------------------------------------

    \312\ 49 U.S.C. 32905.
    \313\ 49 U.S.C. 32906. NHTSA interprets section 32906(a) as not 
limiting the impact of duel fueled vehicles on CAFE calculations 
after MY2019.
    \314\ 49 U.S.C. 32904(a), (c).
---------------------------------------------------------------------------

    With the expiration of the specific procedures for dual fueled 
vehicles, there is less need to base the procedures on whether a 
vehicle meets the specific definition of a dual fueled vehicle in EPCA. 
Instead, EPA's focus is on establishing appropriate procedures for the 
broad range of vehicles that can use both alternative and conventional 
fuels. For convenience, this discussion uses the term dual fuel to 
refer to vehicles that can operate on an alternative fuel and on a 
conventional fuel.
    EPA sees two potential approaches for dual fuel vehicle CAFE 
calculations for model years 2020 and later. EPA requests comment on 
the two options discussed here, and we welcome comments on other 
potential options as well.
    Determining the fuel economy of the vehicle for purposes of CAFE 
requires a determination on how to weight the fuel economy performance 
on the alternative fuel and the fuel economy performance on the 
conventional fuel. For PHEVs, dual-fuel CNG vehicles, and FFVs, EPA 
proposes to apply the same weighting for CAFE purposes as for purposes 
of GHG emissions compliance values. EPA proposes that, for PHEVs and 
dual-fuel CNG vehicles, the fuel economy weightings will be determined 
using the SAE utility factor methodology, while for ethanol FFVs, 
manufacturers can choose to use a default based on 100% gasoline 
operation, or can choose to base the fuel economy weightings on 
national average E85 and gasoline use, or on manufacturer-specific data 
showing the percentage of miles that are driven on E85 vis-[agrave]-vis 
gasoline for that manufacturer's ethanol FFVs. Where the two options 
differ is whether the 0.15 divisor or similar adjustment factor is 
retained or not. EPA believes that there are legitimate arguments both 
for and against retaining the adjustment factors.
    EPA proposes to continue to use the 0.15 divisor for CNG and 
ethanol, and the petroleum equivalency factor for electricity, both of 
which the statute requires to be used through 2019, for model years 
2020 and later. EPA believes there are two primary arguments for 
retaining the 0.15 divisor and petroleum equivalency factor. One, this 
approach is directionally consistent with the overall petroleum 
reduction goals of EPCA and the CAFE program, because it continues to 
encourage manufacturers to build vehicles capable of operating on fuels 
other than petroleum. Two, the 0.15 divisor and petroleum equivalency 
factor are used under EPCA to calculate CAFE compliance values for 
dedicated alternative fuel vehicles, and retaining this approach for 
dual fuel vehicles would maintain consistency, for MY 2020 and later, 
between the approaches for dedicated alternative fuel vehicles and for 
the alternative fuel portion of

[[Page 75020]]

dual fuel vehicle operation. Opting not to provide the 0.15 divisor or 
PEF for the alternative fuel portion of these vehicles' operation may 
discourage manufacturers from building vehicles capable of operating on 
both gasoline/diesel and alternative fuels, and thus potentially 
discourage important ``bridge'' technologies that may help consumers 
overcome current concerns about advanced technology vehicles.
    EPA recognizes that this proposed calculation procedure would 
continue to provide, directionally, an increase in fuel economy values 
for the vehicles previously covered by the special calculation 
procedures in 49 U.S.C. 32905, and that Congress chose both to end the 
specific calculation procedures in that section and over time to reduce 
the benefit for CAFE purposes of the increase in fuel economy mandated 
by those special calculation procedures. However, the proposed 
provisions differ significantly in important ways from the special 
calculation provisions mandated by EPCA. Most importantly, they are 
changed to reflect actual usage rates of the alternative fuel and do 
not use the artificial 50/50 weighting previously mandated by 49 U.S.C. 
32905. In practice this means the primary vehicles to benefit from the 
proposed provision will be PHEVs and dual-fuel CNG vehicles, and not 
FFVs, while the primary source of benefit to manufacturers under the 
statutory provisions came from FFVs. Changing the weighting to better 
reflect real world usage is a major change from that mandated by 49 
U.S.C. 32905, and it orients the calculation procedure more to the real 
world impact on petroleum usage, consistent with the statute's 
overarching purpose of energy conservation. In addition, as noted 
above, Congress clearly continued the calculation procedures for 
dedicated alternative fuel vehicles that result in increased fuel 
economy values. This proposed approach is consistent with this, as it 
uses the same approach for calculating fuel economy on the alternative 
fuel when there is real world usage of the alternative fuel. Since the 
proposed provisions are quite different in effect from the specified 
provisions in 49 U.S.C. 32905, and are consistent with the calculation 
procures for dedicated vehicles that use the same alternative fuel, EPA 
believes this proposal would be an appropriate exercise of discretion 
under the general authority provided in 49 U.S.C. 32904.
    An alternative option to the above proposal, and about which EPA 
seeks comment, is to not adopt the 0.15 divisor and petroleum 
equivalency factor for model years 2020 and later. The fuel economy for 
the CNG portion of a dual fuel CNG vehicle, E85 portion of FFVs, and 
the electric portion of a PHEV would be determined strictly on an 
energy-equivalent basis, without any adjustment based on the 0.15 
divisor or petroleum equivalency factor. For E85 FFVs, the manufacturer 
would almost certainly use the gasoline fuel economy value only because 
gasoline has higher energy content and fuel economy than E85.\315\ This 
approach would place less emphasis on conservation of petroleum and 
more on conservation of energy for dual fuel vehicles. It would also 
place more emphasis on Congress' decision to reduce over time the 
impact on CAFE from the increased fuel economy values derived from the 
specified calculation procedures in 49 U.S.C. 32905, and less emphasis 
on aligning the incentives for dual fuel alternative fuel vehicles with 
the incentives for dedicated alternative fuel vehicles.\316\ EPA 
invites comment on both approaches.
---------------------------------------------------------------------------

    \315\ Manufacturers can also choose to base the fuel economy 
weightings on national average E85 and gasoline use, or on 
manufacturer-specific data showing the percentage of miles that are 
driven on E85 vis-[agrave]-vis gasoline for that manufacturer's 
ethanol FFVs, but since E85 fuel economy ratings are based on miles 
per gallon of E85, not adjusted for energy equivalency with 
gasoline, E85 mpg values are lower than gasoline mpg values, which 
makes this a non-option.
    \316\ Incentives for dedicated alternative fuel vehicles would 
not be affected by changes to incentives for dual fueled vehicles. 
Dedicated alternative fuel vehicles would continue to use the 0.15 
divisor or petroleum equivalency factor.
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5. Off-Cycle Technology Credits
    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate credits for employing new and innovative technologies that 
achieve CO2 reductions which are not reflected on current 2-
cycle test procedures. For this proposal, EPA, in coordination with 
NHTSA, is proposing to apply the off-cycle credits and equivalent fuel 
consumption improvement values to both the GHG and CAFE programs. This 
proposed expansion is a change from the 2012-16 final rule where EPA 
only provided the off-cycle credits for the GHG program. For MY 2017 
and later, EPA is proposing that manufacturers may continue to use off-
cycle credits for GHG compliance and begin to use fuel consumption 
improvement values (essentially equivalent to EPA credits) for CAFE 
compliance. In addition, EPA is proposing a set of defined (e.g. 
default) values for identified off-cycle technologies that would apply 
unless the manufacturer demonstrates to EPA that a different value for 
its technologies is appropriate. The proposed changes to incorporate 
off-cycle technologies for the GHG program are described in Section 
III.C.5.a-b below, and for the CAFE program are described in Section 
III.C.5.c below.
a. Off-Cycle Credit Program Adopted in MY 2012-2016 Rule
    In the MY 2012-2016 Final Rule, EPA adopted an optional credit 
opportunity for new and innovative technologies that reduce vehicle 
CO2 emissions, but for which the CO2 reduction 
benefits are not significantly captured over the 2-cycle test procedure 
used to determine compliance with the fleet average standards (i.e., 
``off-cycle'').\317\ EPA indicated that eligible innovative 
technologies are those that may be relatively newly introduced in one 
or more vehicle models, but that are not yet implemented in widespread 
use in the light-duty fleet, and which provide novel approaches to 
reducing greenhouse gas emissions. The technologies must have 
verifiable and demonstrable real-world GHG reductions.\318\ EPA adopted 
the off-cycle credit option to provide an incentive to encourage the 
introduction of these types of technologies, believing that bona fide 
reductions from these technologies should be considered in determining 
a manufacturer's fleet average, and that a credit mechanism is an 
effective way to do this. This optional credit opportunity is currently 
available through the 2016 model year.
---------------------------------------------------------------------------

    \317\ 75 FR 25438-440,
    \318\ See 40 CFR 1866.12 (d); 75 FR at 25438.
---------------------------------------------------------------------------

    EPA finalized a two-tiered process for OEMs to demonstrate that 
CO2 reductions of an innovative and novel technology are 
verifiable and measureable but are not captured by the 2-cycle test 
procedures. First, a manufacturer must determine whether the benefit of 
the technology could be captured using the 5-cycle methodology 
currently used to determine fuel economy label values. EPA established 
the 5-cycle test methods to better represent real-world factors 
impacting fuel economy, including higher speeds and more aggressive 
driving, colder temperature operation, and the use of air conditioning. 
If this determination is affirmative, the manufacture must follow the 
5-cycle procedures.
    If the manufacturer finds that the technology is such that the 
benefit is not adequately captured using the 5-cycle approach, then the 
manufacturer would have to develop a robust methodology, subject to EPA 
approval, to demonstrate the benefit and determine the appropriate 
CO2 gram per mile credit. This case-by-case, non-5-cycle 
credits approach includes an opportunity for public comment as part of 
the approval

[[Page 75021]]

process. The demonstration program must be robust, verifiable, and 
capable of demonstrating the real-world emissions benefit of the 
technology with strong statistical significance. Whether the approach 
involves on-road testing, modeling, or some other analytical approach, 
the manufacturer is required to present a proposed methodology to EPA. 
EPA will approve the methodology and credits only if certain criteria 
are met. Baseline emissions and control emissions must be clearly 
demonstrated over a wide range of real world driving conditions and 
over a sufficient number of vehicles to address issues of uncertainty 
with the data. Data must be on a vehicle model-specific basis unless a 
manufacturer demonstrated model specific data was not necessary. See 
generally 75 FR at 25438-40.
b. Proposed Changes to the Off-cycle Credits Program
    EPA has been encouraged by automakers' interest in off-cycle 
credits since the program was finalized. Though it is early in the 
program, several manufacturers have shown interest in introducing off-
cycle technologies which are in various stages of development and 
testing. EPA believes that continuing the option for off-cycle credits 
would further encourage innovative strategies for reducing 
CO2 emissions beyond those measured by the 2-cycle test 
procedures. Continuing the program provides manufacturers with 
additional flexibility in reducing CO2 to meet increasingly 
stringent CO2 standards and to encourage early penetration 
of off-cycle technologies into the light duty fleet. Furthermore, 
extending the program may encourage automakers to invest in off-cycle 
technologies that could have the benefit of realizing additional 
reductions in the light-duty fleet over the longer-term. Therefore, EPA 
is proposing to extend the off-cycle credits program to 2017 and later 
model years.
    In implementing the program, some manufacturers have expressed 
concern that a drawback to using the program is uncertainty over which 
technologies may be eligible for off-cycle credits plus uncertainties 
resulting from a case-by-case approval process. Current EPA eligibility 
criteria require technologies to be new, innovative, and not in 
widespread use in order to qualify for credits. Also, the MY 2012-2016 
Final Rule specified that technologies must not be significantly 
measurable on the 2-cycle test procedures. As discussed below, EPA 
proposes to significantly modify the eligibility criteria, as the 
current criteria are not well defined and have been a source of 
uncertainty for manufacturers, thereby interfering with the goal of 
providing an incentive for the development and use of additional 
technologies to achieve real world reductions in CO2 
emissions. The focus will be on whether or not add-on technologies can 
be demonstrated to provide off-cycle CO2 emissions 
reductions that are not sufficiently reflected on the 2-cycle tests.
    In addition, as described below in section III.C.5.b.i, EPA is 
proposing that manufacturers would be able to generate credits by 
applying technologies listed on an EPA pre-defined and pre-approved 
technology list starting with MY 2017. These credits would be verified 
and approved as part of certification with no prior approval process 
needed. We believe this new option would significantly streamline and 
simplify the program for manufacturers choosing to use it and would 
provide manufacturers with certainty that credits may be generated 
through the use of pre-approved technologies. For credits not based on 
the pre-defined list, EPA is proposing to streamline and better define 
a step-by-step process for demonstrating emissions reductions and 
applying for credits. EPA is proposing that these procedural changes to 
the case-by-case approach would be effective for new credit 
applications for both the remaining years of the MY 2012-2016 program 
as well as for MY 2017 and later credits that are not based on the pre-
defined list.
    As discussed in section II.F and III.B.10, EPA, in coordination 
with NHTSA, is also proposing that manufacturers be able to include 
fuel consumption reductions resulting from the use of off-cycle 
technologies in their CAFE compliance calculations. Manufacturers would 
generate ``fuel consumption improvement values'' essentially equivalent 
to EPA credits, for use in the CAFE program. The proposed changes to 
the CAFE program to incorporate off-cycle technologies are discussed 
below in section III.5.c.
i. Pre-Defined Credit List for MY 2017 and Later
    As noted above, EPA proposes to establish a list of off-cycle 
technologies from which manufacturers could select to earn a pre-
defined level of CO2 credits in MY 2017 and later. Both 
technologies and credit values based on the list would be pre-approved. 
The manufacturer would demonstrate in the certification process that 
their technology meets the definition of the technology in the list. 
Table III-17 provides an initial proposed list of the technologies and 
per vehicle credit levels for cars and light trucks. EPA has used a 
combination of available activity data from the MOVES model, vehicle 
and test data, and EPA's vehicle simulation tool to estimate a proposed 
credit value EPA believes to be appropriate. In particular, this 
vehicle simulation tool was used to determine the credit amount for 
electrical load reduction technologies (e.g. high efficiency exterior 
lighting, engine heat reconvery, and solar roof panels) and active 
aerodynamic improvements. Chapter 5 of the joint TSD provides a 
detailed description of how these technologies are defined and how the 
proposed credits levels were derived.

[[Page 75022]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.074

    Two technologies on the list--active aerodynamic improvements and 
stop start--are in a different category than the other technologies on 
the list. Both of these technologies are included in the agencies' 
modeling analysis of technologies projected to be available for use in 
achieving the reductions needed for the standards. We have information 
on their effectiveness, cost, and availability for purposes of 
considering them along with the various other technologies we consider 
in determining the appropriate CO2 emissions standard. These 
technologies are among those listed in Chapter 3 of the joint TSD and 
have measureable benefit on the 2-cycle test. However in the context of 
off-cycle credits, stop start is any technology which enables a vehicle 
to automatically turn off the engine when the vehicle comes to a rest 
and restart the engine when the driver applies pressure to the 
accelerator or releases the brake. This includes HEVs and PHEVs (but 
not EVs). In addition, active grill shutters is just one of various 
technologies that can be used as part of aerodynamic design 
improvements (as part of the ``aero2'' technology). The modeling and 
other analysis developed for determining the appropriate emissions 
standard includes these technologies, using the effectiveness values on 
the 2-cycle test. This is consistent with our consideration of all of 
the other technologies included in these analyses. Including them on 
the list for off-cycle credit generation, for purposes of compliance 
with the standard, would recognize that these technologies have a 
higher degree of effectiveness in reducing real-world CO2 
emissions than is reflected in their 2-cycle effectiveness. EPA has 
taken into account the generation of off-cycle credits by these two 
technologies in determining the appropriateness of the proposed GHG 
standards, considering the amount of credit, the projected degree of 
penetration of these technologies, and other factors. Section III.D has 
a more detailed discussion on the feasibility of the standards within 
the context of the flexibilities (such as off-cycle credits) proposed 
in this rule. As discussed in section III.D, EPA plans to incorporate 
the off-cycle credits for these two technologies in the cost analysis 
for the final rule (which EPA anticipates would slightly reduce costs 
with no change to benefits). EPA requests comments on this approach for 
stop start and active aerodynamic improvements.
    Although EPA believes that there is sufficient information to 
estimate performance of other listed technologies for purposes of a 
credit program, EPA does not believe it appropriate to reflect these 
technologies in setting the level of standards at this point. There 
remains significant uncertainty as to the extent listed technologies 
other than stop start and active aerodynamic improvements may be used 
across the light duty fleet and (in some instances) costs of the 
technologies. Including them in the

[[Page 75023]]

standard setting, as is done with A/C control technology, calls for a 
reasonable projection of the penetration of these technologies across 
the fleet and over time, along with reasonable estimates of their cost. 
EPA does not have adequate data at this point in time to make such 
fleet wide projections for other technologies on the list, or for other 
technologies addressed by the case-by-case approach. As in the 2012-
2016 rule, the use of these technologies continues to be not nearly so 
well developed and understood for purposes of consideration in setting 
the standards. See 75 FR at 25438. Technologies that are considered by 
EPA in setting the standard, as discussed in section III.D and in 
Chapter 3 of the TSD, may not generate off-cycle credits under this 
approach, except for active aerodynamic improvements and stop 
start.\319\ This would amount to the double counting discussed at 75 FR 
25438, as EPA has already considered these technologies and assigned 
them an emission reduction effectiveness for purposes of standard 
setting, and has enough information on effectiveness, cost, and 
applicability to project their use for purposes of standard setting. 
EPA will reassess the list above for the Final Rule, based on 
additional information that becomes available during the comment 
period. It may also be appropriate to reconsider this approach as part 
of the mid-term evaluation as information on these technologies' 
applicability, costs, and performance becomes more robust.
---------------------------------------------------------------------------

    \319\ Section III.D provides EPA projected technology 
penetration rates. Technologies projected to be used to meet the 
standards would not be eligible for off-cycle credits, with the 
exception of stop start and active aerodynamic improvements.
---------------------------------------------------------------------------

    EPA proposes to cap the amount of credits a manufacturer could 
generate using the above list to 10 g/mile per year on a combined car 
and truck fleet-wide average basis. The cap would not apply on a 
vehicle model basis, allowing manufacturers the flexibility to focus 
off-cycle technologies on certain vehicle models and generate credits 
for that vehicle model in excess of 10 g/mile. EPA is proposing a 
fleet-wide cap because the proposed credits are based on limited data, 
and also EPA recognizes that some uncertainty is introduced when 
credits are provided based on a general assessment of off-cycle 
performance as opposed to testing on the individual vehicle models. 
Also, as discussed in Chapter 5 of the draft TSD, EPA believes the 
credits proposed are based on conservative estimates, providing 
additional assurance that the list would not result in an overall loss 
of CO2 benefits. EPA proposes that manufacturers wanting to 
generate credits in excess of the 10 g/mile limit for these listed 
technologies could do so by generating necessary data and going through 
the credit approval process described below in Section III.C.5.b.iii 
and iv.
    As noted above, EPA proposes to make the list available for credit 
generation starting in MY 2017. Prior to MY 2017, manufacturers would 
need to demonstrate off-cycle emissions reductions in order to generate 
credits for off-cycle technologies, including those on the list. 
Requirements for demonstrating off-cycle credits not based on the list 
are described below. Manufacturers may also opt to generate data for 
listed technologies in MY 2017 and later where they are able to 
demonstrate a credit value greater than that provided on the list.
    Prior to MY 2017, EPA would continue to evaluate off-cycle 
technologies. Based on data provided by manufacturers for non-listed 
technologies, and other available data, EPA would consider adding 
technologies to the list through rulemaking. EPA could also issue 
guidance in the future for additional off-cycle technologies, 
indicating the level of credits that EPA expects could be approved for 
any manufacturer through the case-by-case approach, helping to 
streamline the case-by-case approach until a rulemaking was conducted 
to update the list. If the CO2 reduction benefits of a 
technology have been established through manufacturer data and testing, 
EPA believes that it would be appropriate to list the technology and a 
conservative associated credit value.
    Since one purpose of the off-cycle credits is to encourage market 
penetration of the technologies (see 75 FR at 25438), EPA also proposes 
to require minimum penetration rates for several of the listed 
technologies as a condition for generating credit from the list as a 
way to further encourage their widespread adoption by MY 2017 and 
later. The proposed minimum penetration rates for the various 
technologies are provided in Table III-17. At the end of the model year 
for which the off-cycle credit is claimed, manufacturers would need to 
demonstrate that production of vehicles equipped with the technologies 
for that model year exceeded the percentage thresholds in order to 
receive the listed credit. EPA proposes to set the threshold at 10 
percent of a manufacturer's overall combined car and light truck 
production except for technologies specific to HEVs/PHEVs/EVs and 
exhaust heat recovery. EPA believes 10 percent is an appropriate 
threshold as it would encourage manufacturers to develop technologies 
for use on larger volume models and bring the technologies into the 
mainstream. On the other hand, EPA is not proposing a larger value 
because EPA does not want to discourage the use of technologies. For 
solar roof panels (solar control) and electric heater circulation 
pumps, which are HEV/PHEV/EV-specific, EPA is not proposing a minimum 
penetration rate threshold for credit generation. Hybrids and EVs may 
be a small subset of a manufacturer's fleet, less than 10 percent in 
some cases, and EPA does not believe establishing a threshold for 
hybrid-based technologies would be useful and could unnecessarily 
impede the introduction of these technologies. EPA is also not 
proposing to apply a minimum penetration threshold to exhaust heat 
recovery because the threshold could impede rather than encourage the 
development of the technology due to its relatively early stage of 
development and potentially high cost. EPA requests comments on 
applying this type of threshold, the appropriateness of 10 percent as 
the threshold for several of the listed technologies, and the proposed 
treatment of HEV/PHEV/EV specific technologies and exhaust heat 
recovery.
ii. Proposed Technology Eligibility Criteria
    EPA proposes to remove the criteria in the 2012-2016 rule that off-
cycle technologies must be `new, innovative, and not widespread' 
because these terms are imprecise and have created implementation 
issues and uncertainty in the program. For example, it is unclear if 
technologies developed in the past but not used extensively would be 
considered new, if only the first one or two manufacturers using the 
technology would be eligible or if all manufacturers could use a 
technology to generate credits, or if credits for a technology would 
sunset after a period of time. It has also been unclear if a technology 
such as active aerodynamics would be eligible since it provides a small 
measurable reduction on the 2-cycle test but provides additional 
reductions off-cycle, especially during high speed driving. These 
criteria have interfered with the goal of providing an incentive for 
the development and use of off-cycle technology that reduces 
CO2 emissions. EPA proposes this approach for new MY 2012-
2016 credits as well as for MY 2017-2025.
    EPA believes it is appropriate to provide credit opportunities for 
technologies that achieve real world

[[Page 75024]]

reductions beyond those measured under the two-cycle test without 
further making (somewhat subjective) judgments regarding the newness 
and innovativeness of the technology. Instead, EPA proposes to provide 
off-cycle credits for any technologies that are added to a vehicle 
model that are demonstrated to provide significant incremental off-
cycle CO2 reductions, like those on the list. The proposed 
technology demonstration and step-by-step application process is 
described in detail below in section III.C.5.b.ii. EPA is proposing to 
clarify that technologies providing small reductions on the 2-cycle 
tests but additional significant reductions off-cycle could be eligible 
to generate off-cycle credits. EPA thus proposes to remove the ``not 
significantly measurable over the 2-cycle test'' criteria. EPA proposes 
that, instead, manufacturers must be able to make a demonstration 
through testing with and without the off-cycle technology.
    As noted above, EPA proposes that technologies included in EPA's 
assessment in this rulemaking of technology for purposes of developing 
the standard would not be allowed to generate off-cycle credits, as 
their cost and effectiveness and expected use are already included in 
the assessment of the standard. (As explained above, the agencies have 
done so with respect to stop start and active aerodynamic improvements 
by including the projected level of credits in determining the 
appropriateness of the proposed standards.) EPA proposes that 
technologies integral or inherent to the basic vehicle design including 
engine, transmission, mass reduction, passive aerodynamic design, and 
base tires would not be eligible for credits. For example, 
manufacturers would not be able to generate off-cycle credits by moving 
to an eight-speed transmission. EPA believes that it would be difficult 
to clearly establish an appropriate A/B test (with and without 
technologies) for technologies so integral to the basic vehicle design. 
EPA proposes to limit the off-cycle program to technologies that can be 
clearly identified as add-on technologies conducive to A/B testing. 
Further, EPA would not provide credits for a technology required to be 
used by Federal law, such as tire pressure monitoring systems, as EPA 
would consider such credits to be windfall credits (i.e. not generated 
as a result of the rule). The base versions of such technologies would 
be considered part of the base vehicle. However, if a manufacturer 
demonstrates that an improvement to such technologies provides 
additional off-cycle benefits above and beyond a system meeting minimum 
Federal requirements, those incremental improvements could be eligible 
for off-cycle credits, assuming an appropriate quantification of 
credits is demonstrated.
    By proposing to remove the ``new, innovative, not widespread use'' 
criteria in the present rule, EPA is also making clear that once 
approved, EPA does not intend to sunset a technology's credit 
eligibility or deny credits to other vehicle applications using the 
technology, as may have been implied by those criteria under the MY 
2012-2016 program. EPA believes, at this time, that it should encourage 
the wider use of technologies with legitimate off-cycle emissions 
benefits. Manufacturers demonstrating through the EPA approval process 
that the technology is effective on additional vehicle models would be 
eligible for credits. Limiting the application of a technology or 
sunsetting the availability of credits during the 2017-2025 time frame 
would be counterproductive because it would remove part of the 
incentive for manufacturers to invest in developing and deploying off-
cycle technologies, some of which may be promising but have 
considerable development costs associated with them. Also, approving a 
technology only to later disallow it could lead to a manufacturer 
discontinuing the use of the technology even if it remained a cost 
effective way to reduce emissions. EPA also believes that this approach 
provides an incentive for manufacturers to continue to improve 
technologies without concern that they will become ineligible for 
credits at some future time. EPA requests comments on all aspects of 
the above approach for the off-cycle credits program criteria.
iii. Demonstrating Off-Cycle Emissions Reductions
5-Cycle Testing
    EPA is retaining a two-tiered process for demonstrating the 
CO2 reductions of off-cycle technologies (in those instances 
when a manufacturer is not using the default value provided by the 
rule), but is clarifying several of the requirements. The process 
described below would be used for all credits not based on the pre-
defined list described in Section III.C.5.i, above. As noted above, the 
proposed approach would replace the requirement in the 2012-2016 rule 
that technology must not be ``significantly measurable'' over the 2-
cycle test. See section 86. 1866-12 (d) (ii). This criterion has been 
problematic because several technologies provide some benefit on the 2-
cycle test but much greater benefits off-cycle. Under today's proposal, 
technologies would need to be demonstrated to provide significant 
incremental off-cycle benefits above and beyond those provided over the 
2-cycle test (examples are shown below). EPA proposes this approach for 
new MY 2012-2016 credits as well as for MY 2017-2025.
    The 5-cycle test procedures would remain the starting point for 
demonstrating off-cycle emissions reductions. The MY 2012-2016 
rulemaking established general 5-cycle testing requirements and EPA is 
proposing several provisions to delineate what EPA would expect as part 
of a 5-cycle based demonstration. Manufacturers requested clarification 
on the amount of 5-cycle testing that would be needed to demonstrate 
off-cycle credits, and EPA is proposing the following as part of the 
step-by-step methodology manufacturers would follow to generate 
credits. In addition to the general 5-cycle demonstration requirements 
of the MY 2012-2016 program, EPA proposes to specifically require 
model-based verification of 5-cycle results where off-cycle reductions 
are small and could be a product of testing variability. EPA is also 
proposing to specifically require that all applications include an 
engineering analysis for why the technology provides off-cycle 
emissions reductions. EPA proposes to specify that manufacturers would 
run an initial set of three 5-cycle tests with and without the 
technology providing the off-cycle CO2 reduction. Testing 
must be conducted on a representative vehicle, selected using good 
engineering judgment, for each vehicle model. EPA proposes that 
manufacturers could bundle off-cycle technologies together for testing 
in order to reduce testing costs and improve their ability to 
demonstrate consistently measurable reductions over the tests. If these 
A/B 5-cycle tests demonstrate an off-cycle benefit of 3 percent or 
greater, comparing average test results with and without the off-cycle 
technology, the manufacturer would be able to use the data as the basis 
for credits. EPA has long used 3 percent as a threshold in fuel economy 
confirmatory testing for determining if a manufacturer's fuel economy 
test results are comparable to those run by EPA.\320\
---------------------------------------------------------------------------

    \320\ 40 CFR 600.008 (b)(3).
---------------------------------------------------------------------------

    If the initial three sets of 5-cycle results demonstrate a 
reduction of less than a 3 percent difference in the 5-cycle results 
with and without the off-cycle technology, the manufacturer

[[Page 75025]]

would have to run two additional 5-cycle tests with and without the 
off-cycle technologies and verify the emission reduction using the EPA 
Light-duty Simulation Tool described below. If the simulation tool 
supports credits that are less than 3 percent of the baseline 2-cycle 
emissions, then EPA would approve the credits based on the test 
results. As outlined below, credits based on this methodology would be 
subject to a 60 day EPA review period starting when EPA receives a 
complete application, which would not include a public review.
    EPA believes that small off-cycle credit claims (i.e., less than 3 
percent of the vehicle model 2-cycle CO2 level) should be 
supported with modeling and engineering analysis. EPA is proposing the 
approach above for a number of reasons. Emissions reductions of only a 
few grams may not be statistically significant and could be the product 
of gaming. Also, manufacturers have raised test-to-test variability as 
an issue for demonstrating technologies through 5-cycle testing. 
Modeling and engineering analyses can help resolve these questions. EPA 
also requests comments on allowing manufacturers to use the EPA 
simulation tool and engineering analysis in lieu of additional 5-cycle 
testing. For some technologies providing very small incremental 
benefits, it may not be possible to accurately measure their benefit 
with vehicle testing.
Demonstrations Not Based on 5-Cycle Testing
    In cases where the benefit of a technological approach to reducing 
CO2 emissions cannot be adequately represented using 5-cycle 
testing, manufacturers will need to develop test procedures and 
analytical approaches to estimate the effectiveness of the technology 
for the purpose of generating credits. See 75 FR at 25440. EPA is not 
proposing to make significant changes to this aspect of the program. If 
the 5-cycle process is inadequate for the specific technology being 
considered by the manufacturer (i.e., the 5-cycle test does not 
demonstrate any emissions reductions), then an alternative approach may 
be developed by the manufacturer and submitted to EPA for approval. The 
demonstration program must be robust, verifiable, and capable of 
demonstrating the real-world emissions benefit of the technology with 
strong statistical significance. The methodology developed and 
submitted to EPA would be subject to public review as explained at 75 
FR 25440 and in 86.1866(d)(2)(ii).
    EPA has identified two general situations where manufacturers would 
need to develop their own demonstration methodology. The first is a 
situation where the technology is active only during certain operating 
conditions that are not represented by any of the 5-cycle tests. To 
determine the overall emissions reductions, manufacturers must 
determine not only the emissions impacts during operation but also 
real-world activity data to determine how often the technology is 
utilized during actual, in-use driving on average across the fleet. EPA 
has identified some of these types of technologies and has calculated a 
default credit for them, including items such as high efficiency (e.g., 
LED) lights and solar panels on hybrids. See Table III-17 above. In 
their demonstrations, manufacturers may be able to apply the same type 
of methodologies used by EPA as a basis for these default values (see 
TSD Chapter 5).
    The second type of situation where manufacturers would need to 
develop their own demonstration data would be for technologies that 
involve action by the driver to make the technology effective in 
reducing CO2 emissions. EPA believes that driver interactive 
technologies face the highest demonstration hurdle because 
manufacturers would need to provide actual real-world usage data on 
driver response rates. Such technologies would include ``eco buttons'' 
where the driver has the option of selecting more fuel efficient 
operating modes, traffic avoidance systems, and more advanced tire 
pressure monitor systems (i.e., technologies that go beyond the minimum 
Federal requirements) notifying the driver to fill their tires more 
often.\321\ EPA proposes that data would need to be from instrumented 
vehicle studies and not through driver surveys where results may be 
influenced by drivers failure to accurately recall their response 
behavior. Systems such as On-star could be one promising way to collect 
driver response data if they are designed to do so. Manufacturers might 
have to design extensive on-road test programs. Any such on-road 
testing programs would need to be statistically robust and based on 
average U.S. driving conditions, factoring in differences in geography, 
climate, and driving behavior across the U.S. EPA proposes this 
approach for new MY 2012-2016 credits as well as for MY 2017-2025.
---------------------------------------------------------------------------

    \321\ A tire pressure monitor system that also automatically 
fills the tire without driver interaction would obviously not 
involve driver response data for the automatic system, but the 
demonstration may involve the driver response rates for the baseline 
system to determine an incremental credit.
---------------------------------------------------------------------------

EPA Light-Duty Vehicle Simulation Tool
    As explained above and, EPA has developed full vehicle simulation 
capabilities in order to support regulations and vehicle compliance by 
quantifying the effectiveness of different technologies over a wide 
range of engine and vehicle operating conditions. This in-house 
simulation tool has been developed for modeling a wide variety of 
light, medium, and heavy duty vehicle applications over various driving 
cycles. In order to ensure transparency of the models and free public 
access, EPA has developed the tool in MATLAB/Simulink environment with 
a completely open source code. EPA's first application of the vehicle 
simulation tool was for purposes of heavy-duty vehicle compliance and 
certification. For the model years 2014 to 2017 final rule for medium 
and heavy duty trucks, EPA created the ``Greenhouse gas Emissions 
Model'' (GEM), which is used both to assess Class 2b-8 vocational 
vehicle and Class \7/8\ combination tractor GHG emissions and fuel 
efficiency and to demonstrate compliance with the vocational vehicle 
and combination tractor standards. See 76 FR at 57146-147.\322\ EPA 
will submit the simulation tool for peer review for the final rule. 
Chapter 2 of the Draft RIA has more details of this simulation tool.
---------------------------------------------------------------------------

    \322\ See also US EPA, ``Final Rule Making to Establish 
Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for 
Medium- and Heavy-Duty Engines and Vehicles,'' Heavy-Duty Regulatory 
Impact Analysis.give cite to where GEM is written up in the heavy 
duty RIA.
---------------------------------------------------------------------------

    As mentioned previously, the tool is based on MATLAB/Simulink and 
is a forward-looking full vehicle model that uses the same physical 
principles as other commercially available vehicle simulation tools 
(e.g. Autonomie, AVL-CRUISE, GT-Drive, etc.) to derive the governing 
equations. These governing equations describe steady-state and 
transient behaviors of each of electrical, engine, transmission, 
driveline, and vehicle systems, and they are integrated together to 
provide overall system behavior during transient conditions as well as 
steady-state operations. In the light-duty vehicle simulation tool, 
there are four key system elements that describe the overall vehicle 
dynamics behavior and the corresponding fuel efficiency: Electrical, 
engine, transmission, and vehicle. The electrical system model consists 
of parasitic electrical load and A/C blower fan, both of which were 
assumed to be constant. The engine system model is comprised

[[Page 75026]]

of engine torque and fueling maps. For the vehicle system, four 
vehicles were modeled: Small, mid, large size passenger vehicles, and a 
light-duty pick-up truck. The engine maps, transmission gear ratios and 
shifting schedules were appropriately sized and adjusted according to 
the vehicle type represented by the simulation. This tool is capable of 
simulating a wide range of conventional and advanced engines, 
transmissions, and vehicle technologies over various driving cycles. It 
evaluates technology package effectiveness while taking into account 
synergy (and dis-synergy) effects among vehicle components and 
estimates GHG emissions for various combinations of technologies. 
Chapter 2 of the Draft Regulatory Impact Analysis provides more details 
on this light-duty vehicle simulation tool.
    As discussed in section III.C.1, EPA has used the light-duty 
vehicle simulation tool to estimate indirect A/C CO2 
emissions from conventional (non-hybrid) vehicles, helping to quantify 
the indirect A/C credit. In addition to A/C related CO2 
reductions, EPA believes this same simulation tool may be useful in 
estimating CO2 reductions from off-cycle technologies. 
Currently, the model provides A/B relative comparisons with and without 
technologies that can help inform credits estimates. EPA has used it to 
estimate credits for some of the technologies in the proposed pre-
defined list, including active aerodynamic improvements. As discussed 
above, EPA is proposing to require this simulation tool be used as an 
additional way to estimate emissions reductions in cases where the 5-
cycle test results indicate the potential reductions to be small, and 
EPA is also requesting comments on using the simulation tool as a basis 
for estimating off-cycle credits in lieu of 5-cycle testing.
    There are a number of technologies that could bring additional GHG 
reductions over the 5-cycle drive test (or in the real world) compared 
to the combined FTP/Highway (or two) cycle test. These are called off-
cycle technologies and are described in chapter 5 of the Joint TSD in 
detail. Among them are technologies related to reducing vehicle's 
electrical loads, such as High Efficiency Exterior Lights, Engine Heat 
Recovery, and Solar Roof Panels. In an effort to streamline the process 
for approving off-cycle credits, we have set a relatively conservative 
estimate of the credit based on our efficacy analysis. EPA seeks 
comment on utilizing the model in order to quantify the credits more 
accurately, for example, if actual data of electrical load reduction 
and/or on-board electricity generation by one or more of these 
technologies is available through data submission from manufacturers. 
Similarly, there are technologies that would provide additional GHG 
reduction benefits in the 5-cycle test by actively reducing the 
vehicle's aerodynamic drag forces. These are referred to as active 
aerodynamic technologies, which include but are not limited to Active 
Grill Shutters and Active Suspension Lowering. Like the electrical load 
reduction technologies, the vehicle simulation tool can be used to more 
accurately estimate the additional GHG reductions (therefore the 
credits) provided by these active aerodynamic technologies over the 5-
cycle drive test. EPA seeks comment on using the simulation tool in 
order to quantify these credits. In order to do this properly, 
manufacturers would be expected to submit two sets of coast-down 
coefficients (with and without the active aerodynamic technologies).
    There are other technologies that would result in additional GHG 
reduction benefits that cannot be fully captured on the combined FTP/
Highway cycle test. These technologies typically reduce engine loads by 
utilizing advanced engine controls, and they range from enabling the 
vehicle to turn off the engine at idle, to reducing cabin temperature 
and thus A/C compressor loading when the vehicle is restarted. Examples 
include Engine Start-Stop, Electric Heater Circulation Pump, Active 
Engine/Transmission Warm-Up, and Solar Control. For these types of 
technologies, the overall GHG reduction largely depends on the control 
and calibration strategies of individual manufacturers and vehicle 
types. Also, the current vehicle simulation tool does not yet have the 
capability to properly simulate the vehicle behaviors that depend on 
thermal conditions of the vehicle and its surroundings, such as Active 
Engine/Transmission Warm-Up and Solar Control. Therefore, the vehicle 
simulation may not provide full benefits of the technologies on the GHG 
reductions. For this reason, the agency is not proposing to use the 
simulation tool to generate the GHG credits for these technologies at 
this time, though future versions of the model may be more capable of 
quantifying the efficacy of these off-cycle technologies as well.
iv. In-Use Emissions Requirements
    EPA requires off-cycle components to be durable in-use and 
continues to believe that this is an important aspect of the program. 
See 86.1866-12 (d)(1)(iii). The technologies upon which the credits are 
based are subject to full useful life compliance provisions, as with 
other emissions controls. Unless the manufacturer can demonstrate that 
the technology would not be subject to in-use deterioration over the 
useful life of the vehicle, the manufacturer must account for 
deterioration in the estimation of the credits in order to ensure that 
the credits are based on real in-use emissions reductions over the life 
of the vehicle. In-use requirements would apply to technologies 
generating credits based on the pre-defined list as well as to those 
based on a manufacturer's demonstration.
    Manufacturers have requested clarification of these provisions and 
guidance on how to demonstrate in-use performance. EPA is proposing to 
clarify that off-cycle technologies are considered emissions related 
components and all in-use requirements apply including defect 
reporting, warranty, and recall. OBD requirements do not apply under 
the MY 2012-2016 program and EPA is not proposing any OBD requirements 
at this time for off-cycle technologies. Manufacturers may establish 
maintenance intervals for these components in the same way they would 
for other emissions related components. The performance of these 
components would be considered in determining compliance with the 
applicable in-use CO2 standards. Manufacturers may 
demonstrate in-use emissions durability at time of certification by 
submitting an engineering analysis describing why the technology is 
durable and expected to last for the full useful life of the vehicle. 
This demonstration may also include component durability testing or 
through whole vehicle aging if the manufacturer has such data. The 
demonstration would be subject to EPA approval prior to credits being 
awarded.\323\ EPA believes these provisions are important to ensure 
that promised emissions reductions and fuel economy benefit to the 
consumer are delivered in-use. EPA requests comments on the above 
approach for in-use emissions durability.
---------------------------------------------------------------------------

    \323\ Listed technologies are pre-approved assuming the 
manufacturer demonstrates durability.
---------------------------------------------------------------------------

v. Step-by-Step EPA Review Process
    EPA proposes to provide a step-by-step process and timeline for 
reviewing credit applications and providing a decision to 
manufacturers. EPA requests comments on the process described below 
including comments on how to further improve or streamline it while 
maintaining its effectiveness. EPA

[[Page 75027]]

proposes these clarifications and further detailed step-by-step 
instructions for new MY 2012-2016 credits as well as for MY 2017-2025. 
EPA believes these additional details are consistent with the general 
off-cycle requirements adopted in the MY 2012-2016 rule. Starting in MY 
2017, EPA is proposing that manufacturers may generate credits using 
technologies on a pre-defined list, and these technologies would not be 
required to go through the approval process described below.

Step 1: Manufacturer Conducts Testing and Prepares Application

 5-cycle--Manufacturers would conduct the testing and/or 
simulation described above
 Non 5-cycle--Manufacturers would develop a methodology for non 
5-cycle based demonstration and carry-out necessary testing and 
analysis
    [cir] Manufacturers may opt to meet with EPA to discuss their plans 
for demonstrating technologies and seek EPA input prior to conducting 
testing or analysis
 Manufacturers conduct engineering analysis and/or testing to 
demonstrate in-use durability

Step 2: Manufacturer Submits Application

    The manufacturer application must contain the following:

 Description of the off-cycle technologies and how they 
function to reduce off-cycle emissions
 The vehicle models on which the technology will be applied
 Test vehicles selection and supporting engineering analysis 
for their selection
 5-cycle test data, and/or including simulation results using 
EPA Light-duty Simulation Tool, as applicable
 For credits not based on 5-cycle testing, a complete 
description of methodology used to estimate credits and supporting data 
(vehicle test data and activity data)
    [cir] Manufacturer may seek EPA input on methodology prior to 
conducting testing or analysis
 An estimate of off-cycle credits by vehicle model, and 
fleetwide based on projected vehicle sales
 Engineering analysis and/or component durability testing or 
whole vehicle test data (as necessary) demonstrating in-use durability 
of components

Step 3: EPA Review

    Once EPA receives an application, EPA would do the following:

 EPA will review the application for completeness and within 30 
days will notify the manufacturer if additional information is needed
 EPA will review the data and information provided to determine 
if the application supports the level of credits estimated by 
manufacturers
 EPA will consult with NHTSA on the application and the data 
received in cases where the manufacturer intends to generate fuel 
consumption improvement values for CAFE in MY 2017 and later
 For applications where the rule specifies public participation 
in the review process, EPA will make the applications available to the 
public within 60 days of receiving a complete application
    [cir] The public review period will be 30 day review of the 
methodology used by the manufacturer to estimate credits, during which 
time the public may submit comments.
    [cir] Manufacturers may submit a written rebuttal of comments for 
EPA consideration or may revise their application in response to 
comments following the end of the public review period.

Step 4: EPA Decision

     For applications where the rule does not specify public 
participation and review, EPA, after consultation with NHTSA in cases 
where the manufacturer intends to generate fuel consumption improvement 
values for CAFE in MY 2017 and later, will notify the manufacturer of 
its decision within 60 days of receiving a complete application.
     For applications where the rule does specify public 
participation and review, EPA will notify the manufacturer of its 
decision on the application after reviewing public comments.
     EPA will notify manufacturers in writing of its decision 
to approve or deny the credits application, and provide a written 
explanation for its action (supported by the administrative record for 
the application proceeding).
c. Off-Cycle Technology Fuel Consumption Improvement Values in the CAFE 
Program
    EPA proposes, in coordination with NHTSA, that manufacturers would 
be able to generate fuel consumption improvement values equivalent to 
CO2 off-cycle credits for use in the CAFE program. EPA is 
proposing that a CAFE improvement value for off-cycle improvements be 
determined at the fleet level by converting the CO2 credits 
determined under the EPA program (in metric tons of CO2) for 
each fleet (car and truck) to a fleet fuel consumption improvement 
value. This improvement value would then be used to adjust the fleet's 
CAFE level upward. See the proposed regulations at 40 CFR 600.510-12. 
Note that while the following table presents fuel consumption values 
equivalent to a given CO2 credit value, these consumption 
values are presented for informational purposes and are not meant to 
imply that these values will be used to determine the fuel economy for 
individual vehicles. For off-cycle CO2 credits not based on 
the list, manufacturers would go though the steps described above in 
Section III.C.5.b. Again, all off-cycle CO2 credits would be 
converted to a gallons per mile fuel consumption improvement value at a 
fleet level for purposes of the CAFE program. EPA would approve credit 
generation, and corresponding equivalent fuel consumption improvement 
values, in consultation with NHTSA.

[[Page 75028]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.075

D. Technical Assessment of the Proposed CO2 Standards

    This proposed rule is based on the need to obtain significant GHG 
emissions reductions from the transportation sector, and the 
recognition that there are cost-effective technologies available in 
this timeframe to achieve such reductions for MY 2017-2025 light duty 
vehicles. As in many prior mobile source rulemakings, the decision on 
what standard to set is largely based on the effectiveness of the 
emissions control technology, the cost and other impacts of 
implementing the technology, and the lead time needed for manufacturers 
to employ the control technology. The standards derived from assessing 
these factors are also evaluated in terms of the need for reductions of 
greenhouse gases, the degree of reductions achieved by the standards, 
and the impacts of the standards in terms of costs, quantified 
benefits, and other impacts of the standards. The availability of 
technology to achieve reductions and the cost and other aspects of this 
technology are therefore a central focus of this rulemaking.
    EPA is taking the same basic approach in this rulemaking as that 
taken in the MYs 2012-2016 rulemaking. EPA is evaluating emissions 
control technologies which reduce CO2 and other greenhouse 
gases. CO2 emissions from automobiles are largely the 
product of fuel combustion. Vehicles combust fuel to perform two basic 
functions: (1) to transport the vehicle, its passengers and its 
contents (and any towed loads), and (2) to operate various accessories 
during the operation of the vehicle such as the air conditioner. 
Technology can reduce CO2 emissions by either making more 
efficient use of the energy that is produced through combustion of the 
fuel or reducing the energy needed to perform either of these 
functions.
    This focus on efficiency calls for looking at the vehicle as an 
entire system, and as in the MYs 2012-2016 rule, the proposed standards 
reflect this basic paradigm. In addition to fuel delivery, combustion, 
and aftertreatment technology, any aspect of the vehicle that affects 
the need to produce energy must also be considered. For example, the 
efficiency of the transmission system, which takes the energy produced 
by the engine and transmits it to the wheels, and the resistance of the 
tires to rolling both have major impacts on the amount of fuel that is 
combusted while operating the vehicle. The braking system, the 
aerodynamics of the vehicle, and the efficiency of accessories, such as 
the air conditioner, all affect how much fuel is combusted as well.
    In evaluating vehicle efficiency, we have excluded fundamental 
changes in vehicles' utility.\324\ For example, we did not evaluate 
converting minivans and SUVs to station wagons, converting vehicles 
with four wheel drive to two wheel drive, or reducing headroom in order 
to lower the roofline and reduce aerodynamic drag. We have limited our 
assessment of technical feasibility and resultant vehicle cost to 
technologies which maintain vehicle utility as much as possible (and, 
in our assessment of the costs of the rule, included the costs to 
manufacturers of preserving vehicle utility). Manufacturers may decide 
to alter the utility of the vehicles which they sell, but this would 
not be a

[[Page 75029]]

necessary consequence of the rule but rather a matter of automaker 
choice.
---------------------------------------------------------------------------

    \324\ EPA recognizes that electric vehicles, a technology 
considered in this analysis, have unique attributes and discusses 
these considerations in Section III.H.1.b. There is also a fuller 
discussion of the utility of Atkinson engine hybrid vehicles in EPA 
DRIA Chapter 1.
---------------------------------------------------------------------------

    This need to focus on the efficient use of energy by the vehicle as 
a system leads to a broad focus on a wide variety of technologies that 
affect vehicle design. As discussed below, there are many technologies 
that are currently available which can reduce vehicle energy 
consumption. Several of these are ``game-changing'' technologies and 
are already being commercially utilized to a limited degree in the 
current light-duty fleet. Examples include hybrid technologies that use 
high efficiency batteries and electric motors as the power source in 
combination with or instead of internal combustion engines, plug-in 
hybrid electric vehicles, and battery-electric vehicles. While already 
commercialized, these technologies continue to be developed and offer 
the potential for even more significant efficiency improvements. There 
are also other advanced technologies under development and not yet on 
production vehicles, such as high BMEP engines with cooled EGR, which 
offer the potential of improved energy generation taking the gasoline 
combustion process nearly to its thermodynamic limit. In addition, the 
available technologies are not limited to powertrain improvements but 
also include a number of technologies that are expected to continually 
improve incrementally, such as engine friction reduction, rolling 
resistance reduction, mass reduction, electrical system efficiencies, 
and aerodynamic improvements.
    The large number of possible technologies to consider and the 
breadth of vehicle systems that are affected mean that consideration of 
the manufacturer's design, product development and manufacturing 
process plays a major role in developing the proposed standards. 
Vehicle manufacturers typically develop many different models by basing 
them on a limited number of vehicle platforms. The platform typically 
consists of a common set of vehicle architecture and structural 
components.\325\ This allows for efficient use of design and 
manufacturing resources. Given the very large investment put into 
designing and producing each vehicle model, manufacturers typically 
plan on a major redesign for the models approximately every 5 
years.\326\ At the redesign stage, the manufacturer will upgrade or add 
all of the technology and make most other changes supporting the 
manufacturer's plans for the next several years, including plans to 
comply with emissions, fuel economy, and safety regulations.\327\ This 
redesign often involves significant engineering, development, 
manufacturing, and marketing resources to create a new product with 
multiple new features. In order to leverage this significant upfront 
investment, manufacturers plan vehicle redesigns with several model 
years' of production in mind. Vehicle models are not completely static 
between redesigns as limited changes are often incorporated for each 
model year. This interim process is called a refresh of the vehicle and 
generally does not allow for major technology changes although more 
minor ones can be done (e.g., small aerodynamic improvements, valve 
timing improvements, etc). More major technology upgrades that affect 
multiple systems of the vehicle thus occur at the vehicle redesign 
stage and not in the time period between redesigns.
---------------------------------------------------------------------------

    \325\ Examples of shared vehicle platforms include the Ford 
Taurus and Ford Explorer or the Chrysler Sebring and Dodge Journey.
    \326\ See TSD Chapter 3.
    \327\ TSD 3 discusses redesign schedules in greater detail.
---------------------------------------------------------------------------

    This proposal affects nine years of vehicle production, model years 
2017-2025. Given the now-typical five year redesign cycle, many 
vehicles will be redesigned three times between MY 2012 and MY 2025 and 
are expected to be redesigned twice during the 2017-2025 timeframe. Due 
to the relatively long lead time before 2017, there are fewer lead time 
concerns with regard to product redesign in this proposal than with the 
MYs 2012-2016 rule (or the MY 2014-2018 rule for heavy duty vehicles 
and engines). However, there are still some technologies that require 
significant lead time, and are not projected to be heavily utilized in 
the first years of this proposal. An example is the advanced high BMEP, 
cooled EGR engines. As these engines are not yet in vehicles today, a 
research and development period is required, even if there are a number 
of demonstration projects complete (as discussed in Chapter 3 of the 
joint TSD).
    In developing the proposed MY 2021 and 2025 car and truck curves 
(discussed in Section III.B), EPA used the OMEGA model to evaluate 
technologies that manufacturers could use to comply with the targets 
which those curves would establish. These curves correspond to sales-
weighted fleetwide CO2 average targets of 200 g/mile in MY 
2021 and 163 g/mile in MY 2025. As discussed later in this section, we 
believe that this level of technology application to the light-duty 
vehicle fleet can be achieved in this time frame, the standards will 
produce significant reductions in GHG emissions, and the costs for both 
the industry and the costs to the consumer are reasonable and that 
consumer savings due to improved fuel economy will more than pay for 
the increased vehicle cost over the life of the vehicles. EPA also 
estimated costs for the intermediate model years 2017 through 2020 
based on the OMEGA analyses in MYs 2016 and 2021 as well as the 
intermediate model years 2022-2024 based on the OMEGA analyses in MYs 
2021 and 2025.
    EPA's technical assessment of the proposed MY2017-2025 standards is 
described below. EPA has also evaluated a set of alternative standards 
for these model years, two of which are more stringent and two of which 
are less stringent than the standards proposed. The technical 
assessment of these alternative standards in relation to the ones 
proposed is discussed at the end of this section.
    Evaluating the appropriateness of these standards includes a core 
focus on identifying available technologies and assessing their 
effectiveness, cost, and impact on relevant aspects of vehicle 
performance and utility. The wide number of technologies which are 
available and likely to be used in combination requires a sophisticated 
assessment of their combined cost and effectiveness. An important 
factor is also the degree that these technologies are already being 
used in the current vehicle fleet and thus, unavailable for use to 
improve energy efficiency beyond current levels. Finally, the challenge 
for manufacturers to design the technology into their products within 
the constraints of the redesign cycles, and the appropriate lead time 
needed to employ the technology over the product line of the industry 
must be considered.
    Applying these technologies efficiently to the wide range of 
vehicles produced by various manufacturers is a challenging task 
involving dozens of technologies and hundreds of vehicle platforms. In 
order to assist in this task, EPA is again using a computerized program 
called the Optimization Model for reducing Emissions of Greenhouse 
gases from Automobiles (OMEGA). Broadly, OMEGA starts with a 
description of the future vehicle fleet (i.e. the `reference fleet'; 
see section II.B above), including manufacturer, sales, base 
CO2 emissions, footprint and the extent to which emission 
control technologies are already employed. For the purpose of this 
analysis, EPA uses OMEGA to analyze over 200 vehicle platforms 
comprising approximately 1300 vehicle models in order o capture the 
important differences in vehicle and engine design and utility of 
future vehicle sales of roughly 16-18 million

[[Page 75030]]

units annually in the 2017-2025 timeframe. The model is then provided 
with a list of technologies which are applicable to various types of 
vehicles, along with the technologies' cost and effectiveness and the 
percentage of vehicle sales which can receive each technology during 
the redesign cycle of interest. The model combines this information 
with economic parameters, such as fuel prices and a discount rate, to 
project how various manufacturers would apply the available technology 
in order to meet increasing levels of emission control. The result is a 
description of which technologies are added to each vehicle platform, 
along with the resulting cost. While OMEGA can apply technologies which 
reduce CO2 efficiency related emissions and refrigerant 
leakage emissions associated with air conditioner use, this task is 
currently handled outside of the OMEGA model. A/C improvements are 
relatively cost-effective, and would always be added to vehicles by the 
model, thus they are simply added into the results at the projected 
penetration levels. The model can also be set to account for the 
various proposed compliance flexibilities (and to accommodate 
compliance flexibilities in general.
    The remainder of this section describes the technical feasibility 
analysis in greater detail. Section III.D.1 describes the development 
of our reference and control case projections of the MY 2017-2025 
fleet. Section III.D.2 describes our estimates of the effectiveness and 
cost of the control technologies available for application in the 2017-
2025 timeframe. Section III.D.3 describes how these technologies are 
combined into packages likely to be applied at the same time by a 
manufacturer. In this section, the overall effectiveness of the 
technology packages vis-[agrave]-vis their effectiveness when adopted 
individually is described. Section III.D.4 describes EPA's OMEGA model 
and its approach to estimating how manufacturers will add technology to 
their vehicles in order to comply with potential CO2 
emission standards. Section III.D.5 presents the results of the OMEGA 
modeling, namely the level of technology added to manufacturers' 
vehicles and the cost of adding that technology. Section III.D.6 
discusses the appropriateness (or lack of appropriateness) of the 
alternative standards in relation to those proposed. Further technical 
detail on all of these issues can be found in the Draft Joint Technical 
Support Document as well as EPA's Regulatory Impact Analysis.
1. How did EPA develop a reference and control fleet for evaluating 
standards?
    In order to calculate the impacts of this proposal, it is necessary 
to project the GHG emissions characteristics of the future vehicle 
fleet absent the proposed regulation. EPA and NHTSA develop this 
projection using a three step process. (1) Develop a set of detailed 
vehicle characteristics and sales for a specific model year (in this 
case, 2008).\328\ This is called the baseline fleet. (2) Adjust the 
sales of this baseline fleet using projections made by the Energy 
Information Administration (EIA) and CSM to account for projected sales 
volumes in future MYs absent future regulation.\329\ (3) Apply fuel 
saving and emission control technology to these vehicles to the extent 
necessary for manufacturers to comply with the existing 2016 standards 
and the proposed standards.
---------------------------------------------------------------------------

    \328\ As discussed in TSD Chapter 1, and in Section II.B.2, the 
agencies will consider using Model Year 2010 for the final rule, 
based on availability and an analysis of the data 
representativeness.
    \329\ See generally Chapter 1 of the Joint TSD for details on 
development of the baseline fleet, and Section III.H.1 for a 
discussion of the potential sales impacts of this proposal.
---------------------------------------------------------------------------

    Thus, the analyzed fleet differs from the MY 2008 baseline fleet in 
both the level of technology utilized and in terms of the sales of any 
particular vehicle. A similar method is used to analyze both reference 
and control cases, with the major distinction being the stringency of 
the standards.
    EPA and NHTSA perform steps one and two above in an identical 
manner. The development of the characteristics of the baseline 2008 
fleet and the sales adjustment to match AEO and CSM forecasts is 
described in Section II.B above and in greater detail in Chapter 1 of 
the joint TSD. The two agencies perform step three in a conceptually 
identical manner, but each agency utilizes its own vehicle technology 
and emission model to project the technology needed to comply with the 
reference and proposed standards. Further, each agency evaluates its 
own proposed and MY 2016 standards; neither NHTSA nor EPA evaluated the 
other agency's standard in this proposal.\330\
---------------------------------------------------------------------------

    \330\ While the MY 2012-2016 standards are largely similar, some 
important differences remain. See 75 FR at 25342.
---------------------------------------------------------------------------

    The use of MY 2008 vehicles in our fleet projections includes 
vehicle models which already have or will be discontinued by the time 
this rule takes effect and will be replaced by more advanced vehicle 
models. However, we believe that the use of MY 2008 vehicle designs is 
still the most appropriate approach available for this proposal.\331\ 
First, as discussed in Section II.B above, the designs of these MYs 
2017-2025 vehicles at the level of detail required for emission and 
cost modeling are not publically available, and in many cases, do not 
yet exist. Even manufacturers' confidential descriptions of these 
vehicle designs are usually not of sufficient detail to facilitate the 
level of technology and emission modeling performed by both agencies. 
Second, steps two and three of the process used to create the reference 
case fleet adjust both the sales and technology of the 2008 vehicles. 
Thus, our reference fleet reflects the extent that completely new 
vehicles are expected to shift the light vehicle market in terms of 
both segment and manufacturer. Also, by adding technology to facilitate 
compliance with the MY 2016 standards, we account for the vast majority 
of ways in which these new vehicles will differ from their older 
counterparts.
---------------------------------------------------------------------------

    \331\ See section II.B.2 concerning the selection of MY 2008 as 
the appropriate baseline.
---------------------------------------------------------------------------

a. Reference Fleet Scenario Modeled
    EPA projects that in the absence of the proposed GHG and CAFE 
standards, the reference case fleet in MY 2017-2025 would have 
fleetwide GHG emissions performance no better than that projected to be 
necessary to meet the MY 2016 standards. While it is not possible to 
know with certainty the future fleetwide GHG emissions performance in 
the absence of more stringent standards, EPA believes that this 
approach is the most reasonable projection for developing the reference 
case fleet for MYs 2017-2025. One important element supporting the 
proposed approach is that AEO2011 projects relatively stable gasoline 
prices over the next 15 years. The average actual price in the U.S. for 
the first nine months of 2011 for gasoline was $3.57 per gallon ($3.38 
in 2009 dollars).\332\ However, the AEO2011 reference case projects a 
price of $2.80 per gallon (in 2009 dollars) AEO2011 projects prices to 
be $3.25 in 2017, rising slightly to $3.54 per gallon in 2025 (which is 
less than a 4 cent per year increase on average). Based on these fuel 
price projections, the reference fleet for MYs 2017-2025 should 
correspond to a time period where there is a stable, unchanging GHG 
standard, and essentially stable gasoline prices.
---------------------------------------------------------------------------

    \332\ The Energy Information Administration estimated the 
average regular unleaded gasoline price in the U.S. for the first 
nine months of 2011 was $3.57.
---------------------------------------------------------------------------

    EPA reviewed the historical record for similar periods when we had 
stable fuel economy standards and stable gasoline

[[Page 75031]]

prices. EPA maintains, and publishes every year, the seminal reference 
on new light-duty vehicle CO2 emissions and fuel 
economy.\333\ This report contains very detailed data from MYs 1975-
2010. There was an extended 18-year period from 1986 through 2003 
during which CAFE standards were essentially unchanged,\334\ and 
gasoline prices were relatively stable and remained below $1.50 per 
gallon for almost the entire period. The 1975-1985 and 2004-2010 
timeframes are not relevant in this regard due to either rising 
gasoline prices, rising CAFE standards, or both. Thus, the 1986-2003 
time frame is an excellent analogue to the period out to MY 2025 during 
which AEO projects relatively stable gasoline prices. EPA staff have 
analyzed the fuel economy trends data from the 1986-2003 timeframe 
(during which CAFE standards did not vary by footprint) and have drawn 
three conclusions: (1) there was a small, industry-wide, average over-
compliance with CAFE on the order of 1-2 mpg or 3-4%, (2) almost all of 
this industry-wide over-compliance was from 3 companies (Toyota, Honda, 
and Nissan) that routinely over-complied with the universal CAFE 
standards simply because they produced smaller and lighter vehicles 
relative to the industry average, and (3) full line car and truck 
manufacturers, such as General Motors, Ford, and Chrysler, which 
produced larger and heavier vehicles relative to the industry average 
and which were constrained by the universal CAFE standards, rarely 
over-complied during the entire 18-year period.\335\
---------------------------------------------------------------------------

    \333\ Light-Duty Automotive Technology, Carbon Dioxide 
Emissions, and Fuel Economy Trends: 1975 through 2010, November 
2010, available at http://www.epa.gov/otaq/fetrends.htm.
    \334\ There are no EPA LD GHG emissions regulations prior to MY 
2012.
    \335\ See Regulatory Impact Analysis, Chapter 3.
---------------------------------------------------------------------------

    Since the MY 2012-2016 standards are footprint-based, every major 
manufacturer is expected to be constrained by the new standards in 2016 
and manufacturers of small vehicles will not routinely over-comply as 
they had with the past universal standards.\336\ Thus, the historical 
evidence and the footprint-based design of the 2016 GHG emissions and 
CAFE standards strongly support the use of a reference case fleet where 
there are no further fuel economy improvements beyond those required by 
the MY 2016 standards. There are additional factors that reinforce the 
historical evidence. While it is possible that one or two companies may 
over-comply, any voluntary over-compliance by one company would 
generate credits that could be sold to other companies to substitute 
for their more expensive compliance technologies; this ability to buy 
and sell credits could eliminate any over-compliance for the overall 
fleet.\337\ NHTSA also evaluated EIA assumptions and inputs employed in 
the version of NEMS used to support AEO 2011 and found, based on this 
analysis, that when fuel economy standards were held constant after MY 
2016, EIA appears to forecast market-driven levels of over- and under-
compliance generally consistent with a CAFE model analysis using a 
flat, 2016-based reference case fleet. From a consumer market driven 
perspective, while there is considerable evidence that many consumers 
now care more about fuel economy than in past decades, the 2016 
compliance level is projected to be several mpg higher than that being 
demanded in the market today.\338\ On the other hand, some 
manufacturers have already announced plans to introduce technology well 
beyond that required by the 2016 MY GHG standards.\339\ However, it is 
difficult, if not impossible, to separate future fuel economy 
improvements made for marketing purposes from those designed to 
efficiently plan for compliance with anticipated future CAFE or 
CO2 emission standards, i.e., some manufacturers may have 
made public statements about higher mpg levels in the future in part 
because of the expectation of higher future standards.
---------------------------------------------------------------------------

    \336\ With the notable exception of manufacturers who only 
market electric vehicles or other limited product lines.
    \337\ Oates, Wallace E., Paul R. Portney, and Albert M. 
McGartland. ``The Net Benefits of Incentive-Based Regulation: A Case 
Study of Environmental Standard Setting.'' American Economic Review 
79(5) (December 1989): 1233-1242.
    \338\ The average, fleetwide ``laboratory'' or ``unadjusted'' 
fuel economy value for MY 2010 is 28.3 mpg (see Light-Duty 
Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy 
Trends: 1975 Through 2010, November 2010, available at http://www.epa.gov/otaq/fetrends.htm), 6-7 mpg less than the 34-35 mpg 
levels necessary to meet the EPA GHG and NHTSA CAFE levels in MY 
2016.
    \339\ For example, Hyundai has made a public commitment to 
achieve 50 mpg by 2025.
---------------------------------------------------------------------------

    All estimates of actual GHG emissions and fuel economy performance 
in 2016 or other future years are projections, and it is plausible that 
actual GHG emissions and fuel economy performance in 2016 and later 
years, absent more stringent standards, could be worse than projected 
if there are shifts from car market share to truck market share, or to 
higher footprint levels. For example, average fuel economy performance 
levels decreased over the period from 1986-2003 even as car CAFE 
standards were stable and truck CAFE levels rose slightly.\340\ On the 
other hand, it is also possible that future GHG emissions and fuel 
economy performance could be better than MY2016 levels if there are 
shifts from trucks to cars, or to lower footprint levels. While EPA has 
not performed a quantified sensitivity assessment for this proposal, 
EPA believes that a reasonable range for a sensitivity analysis would 
evaluate over or under compliance on the order of a few percent which 
EPA projects would have, at most, a small impact on projected program 
costs and benefits.
---------------------------------------------------------------------------

    \340\ See Regulatory Impact Analysis, Chapter 3.
---------------------------------------------------------------------------

    Based on this assessment, the EPA reference case fleet is estimated 
through the target curves defined in the MY 2016 rulemaking applied to 
the projected MYs 2017-2025 fleet.\341\ As in the previous rulemaking, 
EPA assumes that manufacturers make use of 10.2 grams of air 
conditioning credits on cars and 11.5 on light trucks, or an average of 
approximately 11 grams on the U.S. fleet and the technology for doing 
so is included in the reference case (Section III.C).
---------------------------------------------------------------------------

    \341\ 75 FR at 25686.
---------------------------------------------------------------------------

b. Control Scenarios Modeled
    For the control scenario, EPA modeled the proposed standard curves 
discussed in Section III.B, as well as the alternative scenarios 
discussed in III.D.6. Other flexibilities are accounted for in the 
analysis. The air conditioning credits modeled are discussed in 
III.D.2. Air conditioning credits (both leakage and efficiency) are 
included in the cost and technology analysis described below. The 
compliance value of 0 g/mi for PHEVs and EVs are also included. 
However, off-cycle credits, PH/EV multipliers through MY 2021, pickup 
truck credits, flexible fuel, and carry forward/back credits are not 
included explicitly in the cost analysis. These flexibilities will 
offer the manufacturers more compliance options. Moreover, the overall 
cost analysis includes small volume manufacturers in the fleet, which 
would have company specific standards assuming this part of the 
proposal is finalized (see section III.C). As we expect all of these 
flexibilities together to only have a small impact on the fleet 
compliance costs on average, we will re-evaluate including them in the 
final rule analysis.
c. Vehicle Groupings Used
    In order to create future technology projections and enable 
compliance with the modeled standards, EPA aggregates vehicle sales by 
a combination of manufacturer, vehicle platform, and engine design for 
the OMEGA model. As

[[Page 75032]]

discussed above, manufacturers implement major design changes at 
vehicle redesign and tend to implement these changes across a vehicle 
platform (such as large SUV, mid-size SUV, large automobile, etc) at a 
given manufacturing plant. Because the cost of modifying the engine 
depends on the valve train design (such as SOHC, DOHC, etc.), the 
number of cylinders and in some cases head design, the vehicle sales 
are broken down beyond the platform level to reflect relevant engine 
differences. The vehicle groupings are shown in Table III-19.

[[Page 75033]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.076


[[Page 75034]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.077

2. What are the Effectiveness and Costs of CO2-Reducing 
Technologies?
    EPA and NHTSA worked together to develop information on the 
effectiveness and cost of most CO2-reducing and fuel 
economy-improving technologies. This joint work is reflected in Chapter 
3 of the draft Joint TSD and in Section II.D of this preamble. The work 
on technology cost and effectiveness also includes maximum penetration 
rates, or ``caps'' for the OMEGA model. These caps are an important 
input to OMEGA that capture the agencies' analysis concerning the rate 
at which technologies can be added to the fleet (see Chapter 3.5 of the 
draft joint TSD for more detail). This preamble section, rather than 
repeating those details, focuses upon EPA-only technology assumptions, 
specifically, those relating to air conditioning refrigerant.
    EPA expects all manufacturers will choose to use AC improvement 
credit opportunities as a strategy for complying with the 
CO2 standards, and has set the stringency of the proposed 
standards accordingly (see section II.F above). EPA estimates that the 
level of the credits earned will increase from 2017 (13 grams/mile) to 
2021 (21 grams/mile) as more vehicles in the fleet convert to use of 
the new alternative refrigerant.\342\ By 2021, we project that 100% of 
the MY 2021 fleet will be using alternative refrigerants, and that 
credits will remain constant on a car and truck basis until 2025. Note 
from the table below that costs then decrease from 2021 to 2025 due to 
manufacturer learning as discussed in Section II of this preamble and 
in Chapter 3 of the draft joint TSD. A more in-depth discussion of 
feasibility and availability of low GWP alternative refrigerants, can 
be found in Section III.C of the Preamble.
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    \342\ See table in III.B.

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[[Page 75035]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.078

    Additionally, by MY 2019, EPA estimates that 100% of the A/C 
efficiency improvements will by fully phased-in. However 85% of these 
costs are already in the reference fleet, as this is the level of 
penetration assumed in the 2012-2016 final rule. The penetration of A/C 
costs for this proposal can be found in Chapter 5 of the draft joint 
TSD.
3. How were technologies combined into ``Packages'' and what is the 
cost and effectiveness of packages?
    Individual technologies can be used by manufacturers to achieve 
incremental CO2 reductions. However, as discussed 
extensively in the MYs 2012-2016 Rule, EPA believes that manufacturers 
are more likely to bundle technologies into ``packages'' to capture 
synergistic aspects and reflect progressively larger CO2 
reductions with additions or changes to any given package. In this 
manner, and consistent with the concept of a redesign cycle, 
manufacturers can optimize their available resources, including 
engineering, development, manufacturing and marketing activities to 
create a product with multiple new features. Therefore, the approach 
taken here is to group technologies into packages of increasing cost 
and effectiveness.
    EPA built unique technology packages for each of 19 ``vehicle 
types,'' which, as in the MYs 2012-2016 rule and the Interim Joint TAR, 
provides sufficient resolution to represent the technology of the 
entire fleet. This was the result of analyzing the existing light duty 
fleet with respect to vehicle size and powertrain configurations. All 
vehicles, including cars and trucks, were first distributed based on 
their relative size, starting from compact cars and working upward to 
large trucks. Next, each vehicle was evaluated for powertrain, 
specifically the engine size (I4, V6, and V8) then by valvetrain 
configuration (DOHC, SOHC, OHV), and finally by the number of valves 
per cylinder. For purposes of calculating some technology costs and 
effectiveness values, each of these 19 vehicle types is mapped into one 
of seven classes of vehicles: Subcompact, Small car, Large car, 
Minivan, Minivan with towing, Small truck, and Large truck.\343\ We 
believe that these seven vehicle classes, along with engine cylinder 
count, provide adequate representation for the cost basis associated 
with most technology application. Note also that these 19 vehicle types 
span the range of vehicle footprints--smaller footprints for smaller 
vehicles and larger footprints for larger vehicles--which served as the 
basis for the 2012-2016 GHG standards and the standards in this 
proposal. A detailed table showing the 19 vehicle types, their baseline 
engines and their

[[Page 75036]]

descriptions is contained in Table III-19 and in Chapter 1 of EPA's 
draft RIA.
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    \343\ Note that, for the current assessment and representing an 
update since the 2010 TAR, EPA has created a new vehicle class 
called ``minivan with towing'' which allows for greater 
differentiation of costs for this popular class of vehicles (such as 
the Ford Edge, Honda Odyssey, Jeep Grand Cherokee).
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    Within each of the 19 vehicle types, multiple technology packages 
were created in increasing technology content resulting in increasing 
effectiveness. As stated earlier, with few exceptions, each package is 
meant to provide equivalent driver-perceived performance to the 
baseline package. Note that we refer throughout this discussion of 
package building to a ``baseline'' vehicle or a ``baseline'' package. 
This should not be confused with the baseline fleet, which is the fleet 
of roughly 16 million 2008MY individual vehicles comprised of over 
1,100 vehicle models. In this discussion, when we refer to ``baseline'' 
vehicle we refer to the ``baseline'' configuration of the given vehicle 
type. So, we have 19 baseline vehicles in the context of building 
packages. Each of those 19 baseline vehicles is equipped with a port 
fuel injected engine and a 4 speed automatic transmission. The 
valvetrain configuration and the number of cylinders changes for each 
vehicle type in an effort to encompass the diversity in the 2008 
baseline fleet as discussed above. In short, while the baseline vehicle 
that defines the vehicle type is relevant when discussing the package 
building process, the baseline and reference case fleets of real 
vehicles are not relevant to the discussion here. We describe this in 
more detail in Chapter 1 of EPA's draft RIA.
    To develop a set of packages as OMEGA inputs, EPA builds packages 
consisting of every legitimate permutation of technology available, 
subject to constraints.\344\ This ``preliminary-set'' of packages 
consists of roughly 2,000 possible packages of technologies for each of 
19 vehicle types, or nearly 40,000 packages in all. The cost of each 
package is determined by adding the cost of each individual technology 
contained in the package for the given year of interest. The 
effectiveness of each package is determined in a more deliberate 
manner; one cannot simply add the effectiveness of individual 
technologies to arrive at a package-level effectiveness because of the 
synergistic effects of technologies when grouped with other 
technologies that seek to improve the same or similar efficiency loss 
mechanism. As an example, the benefits of the engine and transmission 
technologies can usually be combined multiplicatively,\345\ but in some 
cases, the benefit of the transmission-related technologies overlaps 
with the engine technologies. This occurs because the transmission 
technologies shift operation of the engine to more efficient locations 
on the engine map by incorporating more ratio selections and a wider 
ratio span into the transmissions. Some of the engine technologies have 
the same goal, such as cylinder deactivation, advanced valvetrains, and 
turbocharging. In order to account for this overlap and avoid over-
estimating emissions reduction effectiveness, EPA uses an engineering 
approach known as the lumped-parameter technique. The results from this 
approach were then applied directly to the vehicle packages. The 
lumped-parameter technique is well documented in the literature, and 
the specific approach developed by EPA is detailed in Chapter 3 
(Section 3.3.2) of the draft joint TSD as well as Chapter 1 of EPA's 
draft RIA.
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    \344\ Example constraints include the requirement for 
stoichiometric gasoline direct injection on every turbocharged and 
downsized engine and/or any 27 bar BMEP turbocharged and downsized 
engine must also include cooled EGR. Some constraints are the result 
of engineering judgment while others are the result of effectiveness 
value estimates which are tied to specific combinations of 
technologies.
    \345\ For example, if an engine technology reduces 
CO2 emissions by five percent and a transmission 
technology reduces CO2 emissions by four percent, the 
benefit of applying both technologies is 8.8 percent (100% - (100% - 
4%) * (100% - 5%)).
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    Table III-21 presents technology costs for a subset of the more 
prominent technologies in our analysis (note that all technology costs 
are presented in Chapter 3 of the draft Joint TSD and in Chapter 1.2 of 
EPA's draft RIA). Table III-21 includes technology costs for a V6 dual 
overhead cam midsize or large car and a V8 overhead valve large pickup 
truck. This table is meant to illustrate how technology costs are 
similar and/or different for these two large selling vehicle classes 
and how the technology costs change over time due to learning and 
indirect cost changes as described in section II.D of this preamble and 
at length in Chapter 3.2 of the draft Joint TSD. Note that these costs 
are not package costs but, rather, individual technology costs. We 
present package costs for the V6 midsize or large car in Table III-22, 
below.

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[[Page 75038]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.080

    Table III-22 presents the cost and effectiveness values from a 
2025MY master-set of packages used in the OMEGA model for EPA's vehicle 
type 5, a midsize or large car class equipped with a V6 engine. Similar 
packages were generated for each of the 19 vehicle types and the costs 
and effectiveness estimates for each of those packages are discussed in 
detail in Chapter 1 of EPA's draft RIA.
    As detailed in Chapter 1 of EPA's draft RIA, this preliminary-set 
of packages is then ranked according to technology application ranking 
factors (TARFs) to eliminate packages that are not as cost-effective as 
others.\346\ The result of this TARF ranking process is a ``ranked-
set'' of roughly 500 packages for use as OMEGA inputs, or roughly 25 
per vehicle type. EPA prepares a ranked set of packages for any MY in 
which OMEGA is run,\347\ the initial packages represent what we believe 
a manufacturer will most likely implement on all vehicles, including 
lower rolling resistance tires, low friction lubricants, engine 
friction reduction, aggressive shift logic, early torque converter 
lock-up, improved electrical accessories, and low drag brakes (to the 
extent not reflected in the baseline vehicle).\348\ Subsequent packages 
include gasoline direct injection, turbocharging and downsizing, and 
more advanced transmission technologies such as six and eight speed 
dual-clutch transmissions and 6 and 8 speed automatic transmissions. 
The most technologically advanced packages within a vehicle type 
include the hybrids, plug-in hybrids and electric vehicles. Note that 
plug-in hybrid and electric vehicle packages are only modeled for the 
non-towing vehicle types, in order to better maintain utility. We 
request comment on this decision and whether or not we should perhaps 
consider plug-in hybrids for towing vehicle types.
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    \346\ The Technology Application Ranking Factor (TARF) is 
discussed further in III.D.5.
    \347\ Note that a ranked-set of package is generated for any 
year for which OMEGA is run due to the changes in costs and maximum 
penetration rates. EPA's draft RIA chapter 3 contains more details 
on the OMEGA modeling and draft Joint TSD Chapter 3 has more detail 
on both costs changes over time and the maximum penetration limits 
of certain technologies.
    \348\ When making reference to low friction lubricants, the 
technology being referred to is the engine changes and possible 
durability testing that would be done to accommodate the low 
friction lubricants, not the lubricants themselves.

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[GRAPHIC] [TIFF OMITTED] TP01DE11.082


[[Page 75041]]


4. How does EPA project how a manufacturer would decide between options 
to improve CO2 performance to meet a fleet average standard?
    As discussed, there are many ways for a manufacturer to reduce 
CO2-emissions from its vehicles. A manufacturer can choose 
from a myriad of CO2 reducing technologies and can apply one 
or more of these technologies to some or all of its vehicles. Thus, for 
a variety of levels of CO2 emission control, there are an 
almost infinite number of technology combinations which produce a 
desired CO2 reduction. As noted earlier, EPA used the same 
model used in the MYs 2012-2016 Rule, the OMEGA model, in order to make 
a reasonable estimate of how manufacturers will add technologies to 
vehicles in order to meet a fleet-wide CO2 emissions level. 
EPA has described OMEGA's specific methodologies and algorithms 
previously in the model documentation,\349\ makes the model publically 
available on its Web site,\350\ and has recently peer reviewed the 
model.\351\
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    \349\ Previous OMEGA documentation for versions used in MYs 
2012-2016 Final Rule (EPA-420-B-09-035), Interim Joint TAR (EPA-420-
B-10-042).
    \350\ http://www.epa.gov/oms/climate/models.htm.
    \351\ EPA-420-R-09-016, September 2009.
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    The OMEGA model utilizes four basic sets of input data. The first 
is a description of the vehicle fleet. The key pieces of data required 
for each vehicle are its manufacturer, CO2 emission level, 
fuel type, projected sales and footprint. The model also requires that 
each vehicle be assigned to one of the 19 vehicle types, which tells 
the model which set of technologies can be applied to that vehicle. 
(For a description of how the 19 vehicle types were created, see 
Section III.D.3 above.) In addition, the degree to which each baseline 
vehicle already reflects the effectiveness and cost of each available 
technology must also be input. This avoids the situation, for example, 
where the model might try to add a basic engine improvement to a 
current hybrid vehicle. Except for this type of information, the 
development of the required data regarding the reference fleet was 
described in Section III.D.1 above and in Chapter 1 of the Joint TSD.
    The second type of input data used by the model is a description of 
the technologies available to manufacturers, primarily their cost and 
effectiveness. This information was described above as well as in 
Chapter 3 of the draft Joint TSD and Chapter 1 of EPA's draft RIA. In 
all cases, the order of the technologies or technology packages for a 
particular vehicle type is determined by the model user prior to 
running the model. The third type of input data describes vehicle 
operational data, such as annual vehicle scrappage rates and mileage 
accumulation rates, and economic data, such as fuel prices and discount 
rates. These estimates are described in Section II.E above, Section 
III.H below and Chapter 4 of the Joint TSD.
    The fourth type of data describes the CO2 emission 
standards being modeled. These include the MY 2016 standards, proposed 
MY 2021 and proposed MY 2025 standards. As described in more detail 
below, the application of A/C technology is evaluated in a separate 
analysis from those technologies which impact CO2 emissions 
over the 2-cycle test procedure. Thus, for the percent of vehicles that 
are projected to achieve A/C related reductions, the CO2 
credit associated with the projected use of improved A/C systems is 
used to adjust the final CO2 standard which will be 
applicable to each manufacturer to develop a target for CO2 
emissions over the 2-cycle test which is assessed in our OMEGA 
modeling. As an example, on an industry wide basis, EPA projects that 
manufacturers will generate 11 g/mi of A/C credit in 2016. Thus, the 
2016 CO2 target in OMEGA was approximately eleven grams less 
stringent for each manufacturer than predicted by the curves. Similar 
adjustments were made for the control cases (i.e., the A/C credits 
allowed by the rule are accounted for in the standards), but for a 
larger amount of A/C credit (approximately 25 grams).
    As mentioned above for the market data input file utilized by 
OMEGA, which characterizes the vehicle fleet, our modeling accounts for 
the fact that many 2008 MY vehicles are already equipped with one or 
more of the technologies discussed in Section III.D.2 above. Because of 
the choice to apply technologies in packages, and because 2008 vehicles 
are equipped with individual technologies in a wide variety of 
combinations, accounting for the presence of specific technologies in 
terms of their proportion of package cost and CO2 
effectiveness requires careful, detailed analysis.
    Thus, EPA developed a method to account for the presence of the 
combinations of applied technologies in terms of their proportion of 
the technology packages. This analysis can be broken down into four 
steps
    The first step in the updated process is to break down the 
available GHG control technologies into five groups: (1) Engine-
related, (2) transmission-related, (3) hybridization, (4) weight 
reduction and (5) other. Within each group, each individual technology 
was given a ranking which generally followed the degree of complexity, 
cost and effectiveness of the technologies within each group. More 
specifically, the ranking is based on the premise that a technology on 
a 2008 baseline vehicle with a lower ranking would be replaced by one 
with a higher ranking which was contained in one of the technology 
packages which we included in our OMEGA modeling. The corollary of this 
premise is that a technology on a 2008 baseline vehicle with a higher 
ranking would be not be replaced by one with an equal or lower ranking 
which was contained in one of the technology packages which we chose to 
include in our OMEGA modeling. This ranking scheme can be seen in an 
OMEGA pre-processor (the TEB/CEB calculation macro), available in the 
docket.
    In the second step of the process, these rankings were used to 
estimate the complete list of technologies which would be present on 
each baseline vehicle after the application of a technology package. In 
other words, this step indicates the specific technology on each 
baseline vehicle after a package has been applied to it. EPA then used 
the lumped parameter model to estimate the total percentage 
CO2 emission reduction associated with the technology 
present on the baseline vehicle (termed package 0), as well as the 
total percentage reduction after application of each package. A similar 
approach was used to determine the total cost of all of the technology 
present on the baseline vehicle and after the application of each 
applicable technology package.
    The third step in this process is to account for the degree of each 
technology package's incremental effectiveness and incremental cost is 
affected by the technology already present on the baseline vehicle. In 
this step, we calculate the degree to which a technology package's 
effectiveness is already present on the baseline vehicle, and produce a 
value for each package termed the technology effectiveness basis, or 
TEB. The degree to which a technology package's incremental cost is 
reduced by technology already present on the baseline vehicle is termed 
the cost effectiveness basis, or CEB, in the OMEGA model. The equations 
for calculating these values can be seen in RIA chapter 3.
    As described in Section III.D.3 above, technology packages are 
applied to groups of vehicles which generally represent a single 
vehicle platform and which are equipped with a single engine size 
(e.g., compact cars with four cylinder engine produced by Ford). These 
groupings are described in Table

[[Page 75042]]

III-19. Thus, the fourth step is to combine the fractions of the CEB 
and TEB of each technology package already present on the individual MY 
2008 vehicle models for each vehicle grouping. For cost, percentages of 
each package already present are combined using a simple sales-
weighting procedure, since the cost of each package is the same for 
each vehicle in a grouping. For effectiveness, the individual 
percentages are combined by weighting them by both sales and base 
CO2 emission level. This appropriately weights vehicle 
models with either higher sales or CO2 emissions within a 
grouping. Once again, this process prevents the model from adding 
technology which is already present on vehicles, and thus ensures that 
the model does not double count technology effectiveness and cost 
associated with complying with the modeled standards.
    Conceptually, the OMEGA model begins by determining the specific 
CO2 emission standard applicable for each manufacturer and 
its vehicle class (i.e., car or truck). Since the proposal allows for 
averaging across a manufacturer's cars and trucks, the model determines 
the CO2 emission standard applicable to each manufacturer's 
car and truck sales from the two sets of coefficients describing the 
piecewise linear standard functions for cars and trucks (i.e., the 
respective car and truck curves) in the inputs, and creates a combined 
car-truck standard. This combined standard considers the difference in 
lifetime VMT of cars and trucks, as indicated in the proposed 
regulations which govern credit trading between these two vehicle 
classes (which reflect the final 2012-2016 rules on this point).\352\
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    \352\ The analysis for the control cases in this proposal was 
run with slightly different lifetime VMT estimates than those 
proposed in the regulation. The impact on the cost estimates is 
small and varies by manufacturer.
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    As noted above, EPA estimated separately the cost of the improved 
A/C systems required to generate the credit. In the reference case 
fleet that complies with the MY 2016 standards, 85% of vehicles are 
modeled with improved A/C efficiency and leakage prevention technology.
    The model then works with one manufacturer at a time to add 
technologies until that manufacturer meets its applicable proposed 
standard. The OMEGA model can utilize several approaches to determining 
the order in which vehicles receive technologies. For this analysis, 
EPA used a ``manufacturer-based net cost-effectiveness factor'' to rank 
the technology packages in the order in which a manufacturer is likely 
to apply them. Conceptually, this approach estimates the cost of adding 
the technology from the manufacturer's perspective and divides it by 
the mass of CO2 the technology will reduce. One component of 
the cost of adding a technology is its production cost, as discussed 
above. However, it is expected that new vehicle purchasers value 
improved fuel economy since it reduces the cost of operating the 
vehicle. Typical vehicle purchasers are assumed to value the fuel 
savings accrued over the period of time which they will own the 
vehicle, which is estimated to be roughly five years. It is also 
assumed that consumers discount these savings at the same rate as that 
used in the rest of the analysis (3 or 7 percent).\353\ Any residual 
value of the additional technology which might remain when the vehicle 
is sold is not considered. The CO2 emission reduction is the 
change in CO2 emissions multiplied by the percentage of 
vehicles surviving after each year of use multiplied by the annual 
miles travelled by age.
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    \353\ While our costs and benefits are discounted at 3% or 7%, 
the decision algorithm (TARF) used in OMEGA was run at a discount 
rate of 3%. Given that manufacturers must comply with the standard 
regardless of the discount rate used in the TARF, this has little 
impact on the technology projections shown here.
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    Given this definition, the higher priority technologies are those 
with the lowest manufacturer-based net cost-effectiveness value 
(relatively low technology cost or high fuel savings leads to lower 
values). Because the order of technology application is set for each 
vehicle, the model uses the manufacturer-based net cost-effectiveness 
primarily to decide which vehicle receives the next technology 
addition. Initially, technology package 1 is the only one 
available to any particular vehicle. However, as soon as a vehicle 
receives technology package 1, the model considers the 
manufacturer-based net cost-effectiveness of technology package 
2 for that vehicle and so on. In general terms, the equation 
describing the calculation of manufacturer-based cost effectiveness is 
as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.083

Where:

CostEffManuft = Manufacturer-Based Cost Effectiveness (in 
dollars per kilogram CO2),
TechCost = Marked up cost of the technology (dollars),
FS = Difference in fuel consumption due to the addition of 
technology times fuel price and discounted over the payback period, 
or the number of years of vehicle use over which consumers value 
fuel savings when evaluating the value of a new vehicle at time of 
purchase
dCO2 = Difference in CO2 emissions (g/mile) 
due to the addition of technology
VMTregulatory = the statutorily defined VMT

    EPA describes the technology ranking methodology and manufacturer-
based cost effectiveness metric in greater detail in the OMEGA 
documentation.\354\
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    \354\ OMEGA model documentation. EPA-420-B-10-042.
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    When calculating the fuel savings in the TARF equation, the full 
retail price of fuel, including taxes is used. While taxes are not 
generally included when calculating the cost or benefits of a 
regulation, the net cost component of the manufacturer-based net cost-
effectiveness equation is not a measure of the social cost of this 
proposed rule, but a measure of the private cost, (i.e., a measure of 
the vehicle purchaser's willingness to pay more for a vehicle with 
higher fuel efficiency). Since vehicle operators pay the full price of 
fuel, including taxes, they value fuel costs or savings at this level, 
and the manufacturers will consider this when choosing among the 
technology options.\355\
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    \355\ This definition of manufacturer-based net cost-
effectiveness ignores any change in the residual value of the 
vehicle due to the additional technology when the vehicle is five 
years old. Based on historic used car pricing, applicable sales 
taxes, and insurance, vehicles are worth roughly 23% of their 
original cost after five years, discounted to year of vehicle 
purchase at 7% per annum. It is reasonable to estimate that the 
added technology to improve CO2 level and fuel economy 
will retain this same percentage of value when the vehicle is five 
years old. However, it is less clear whether first purchasers, and 
thus, manufacturers consider this residual value when ranking 
technologies and making vehicle purchases, respectively. For this 
proposal, this factor was not included in our determination of 
manufacturer-based net cost-effectiveness in the analyses.
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    The values of manufacturer-based net cost-effectiveness for 
specific

[[Page 75043]]

technologies will vary from vehicle to vehicle, often substantially. 
This occurs for three reasons. First, both the cost and fuel-saving 
component cost, ownership fuel-savings, and lifetime CO2 
effectiveness of a specific technology all vary by the type of vehicle 
or engine to which it is being applied (e.g., small car versus large 
truck, or 4-cylinder versus 8-cylinder engine). Second, the 
effectiveness of a specific technology often depends on the presence of 
other technologies already being used on the vehicle (i.e., the dis-
synergies). Third, the absolute fuel savings and CO2 
reduction of a percentage an incremental reduction in fuel consumption 
depends on the CO2 level of the vehicle prior to adding the 
technology. Chapter 1 of EPA's draft RIA contains further detail on the 
values of manufacturer-based net cost-effectiveness for the various 
technology packages.
5. Projected Compliance Costs and Technology Penetrations
    The following tables present the projected incremental costs and 
technology penetrations for the proposed program. Overall projected 
cost increases are $734 in MY 2021 and $1946 in MY 2025. Relative to 
the reference fleet complying with of MY 2016 standards, we see 
significant increases in advanced transmission technologies such as the 
high efficiency gear box and 8 speed transmissions, as well as more 
moderate increase in turbo downsized, cooled EGR 24 bar BMEP engines. 
In the control case, 15 percent of the MY 2025 fleet is projected to be 
a strong P2 hybrid as compared to 5% in the 2016 reference case. 
Similarly, 3 percent of the MY 2025 fleet are projected to be electric 
vehicles while less than 1 percent are projected to be electric 
vehicles in the reference case. EPA notes that we have projected one 
potential compliance path for each company and the industry as a 
whole--this does not mean other potential technology penetrations are 
not possible, in fact, it is likely that each firm will of course plot 
their own future course on how to comply. For example, while we show 
relatively low levels of EV and PHEV technologies may be used to meet 
the proposed standards, several firms have announced plans to 
aggressively pursue EV and PHEV technologies and thus the actual 
penetration of those technologies may turn out to be much higher than 
the prediction we present here.
BILLING CODE 4910-59-P

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BILLING CODE 4910-59-C
6. How does the technical assessment support the proposed 
CO2 standards as compared to the alternatives has EPA 
considered?
a. What are the targets and achieved levels for the fleet in this 
proposal?
    In this section EPA analyzes the proposed standards alongside 
several potential alternative GHG standards.
    Table III-28 includes a summary of the proposed standards and the 
four alternatives considered by EPA for this notice. In this table and 
for the majority of the data presented in this section, EPA focuses on 
two specific model years in the 2017-2025 time frame addressed by this 
proposal. For the purposes of considering alternatives, EPA assessed 
these two specific years as being reasonably separated in time in order 
to evaluate a range of meaningfully different standards, rather than 
analyzing alternatives for each individual model year. After discussing 
the reasons for selecting the proposed standards rather than any of the 
alternatives, EPA will describe the specific standard phase-in schedule 
for the proposal. Table III-28 presents the projected reference case 
targets for the fleet in 2021 and 2025, that is the estimated industry 
wide targets that would be required for the projected fleet in those 
years by the MY 2016 standards.\357\ The alternatives, like the 
proposed standards, account for projected use of A/C related credits. 
They represent the average targets for cars and trucks projected for 
the proposed standards and four alternative standards. They do not 
represent the manner in which manufacturers are projected to achieve 
compliance with these targets, which includes the ability to transfer 
credits to and from the car and truck fleets. That is discussed later.
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    \357\ The reference case targets for 2021 and 2025 may be 
different even though the footprint based standards are identical 
(the 2016 curves). This is because the fleet distribution of cars 
and trucks may change in the intervening years thus changing the 
targets in 2021 and 2025.

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[[Page 75052]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.092

    Alternative 1 and 2 are focused on changes in the level of 
stringency for just light-duty trucks: Alternative 1 is 20 grams/mile 
CO2 less stringent (higher) in 2021 and 2025, and 
Alternative 2 is 20 grams/mile CO2 more stringent (lower) in 
2021 and 2025. Alternative 3 and 4 are focused on changes in the level 
of stringency for just passenger cars: Alternative 3 is 20 grams/mile 
CO2 less stringent (higher) in 2021 and 2025, and 
Alternative 4 is 20 grams/mile CO2 more stringent (lower) in 
2021 and 2025. When combined with the sales projections for 2021 and 
2025, these alternatives span fleet wide targets with a range of 187-
213 g/mi CO2 in 2021 (equivalent to a range of 42-48 mpge if 
all improvements were made with fuel economy technologies) and a range 
of 150-177 g/mi CO2 in 2025 in 2025 (equivalent to a range 
of 50-59 mpg if all improvements were made with fuel economy 
technologies).
    Using the OMEGA model, EPA evaluated the proposed standards and 
each of the alternatives in 2021 and in 2025. It is worth noting that 
although Alternatives 1 and 2 consider different truck footprint curves 
compared to the proposal and Alternatives 3 and 4 evaluate different 
car footprint curves compared to the proposal, in all cases EPA 
evaluated the alternatives by modeling both the car and truck footprint 
curves together (which achieve the fleet targets shown in Table III-28) 
as this is how manufacturers would view the future standards given the 
opportunity to transfer credits between cars and trucks under the GHG 
program.\358\ A manufacturer's ability to transfer GHG credits between 
its car and truck fleets without limit does have the effect of muting 
the ``truck'' focused and ``car'' focused nature of the alternatives 
EPA is evaluating. For example, while Alternative 1 has truck standards

[[Page 75053]]

projected in 2021 and 2025 to be 20 grams/mile less stringent than the 
proposed truck standards and the same car standards as the proposed car 
standards, individual firms may over comply on trucks and under-comply 
on cars (or vice versa) in order to meet Alternative 1 in a cost 
effective manner from each company's perspective. EPA's modeling of 
single manufacturer fleets reflects this flexibility, and appropriately 
so given that it reflects manufacturers' expected response.
---------------------------------------------------------------------------

    \358\ The curves for the alternatives were developed using the 
same methods as the proposed curves, however with different targets. 
Thus, just as in the proposed curves, the car and truck curves 
described in TSD 2 were ``fanned'' up or down to determine the 
curves of the alternatives.
---------------------------------------------------------------------------

    Table III-29 shows the projected target and projected achieved 
levels in 2025 for the proposed standards. This accounts for a 
manufacturer's ability to transfer credits to and from cars and trucks 
to meet a manufacturer's car and truck targets.

[[Page 75054]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.093

    Similar tables for each of the alternatives for 2025 and for the 
alternatives and the proposal for 2021 are contained in Chapter 3 of 
EPA's draft RIA. With the proposed standards and for Alternatives 1 and 
2, all

[[Page 75055]]

companies are projected to be able to comply both in 2021 and 2025, 
with the with the exception of Ferrari, which in each case falls 9 g/mi 
short of its projected fleet wide obligation in 2025.\359\ In 
Alternatives 3 and 4, where the car stringency varies, all companies 
are again projected to comply with the exception of Ferrari, which 
complies under Alternative 3, but has a 30 gram shortfall under 
Alternative 4. This level of compliance was not the case for the 2016 
standards from the previous rule. The primary reason for this result is 
the penetration of more efficient technologies beyond 2016. As 
described earlier, many technologies projected as not to be available 
by MY 2016 or whose penetration was limited due to lead time issues are 
projected to be available or available at greater penetration rates in 
the 2017-2025 timeframe, especially given two more redesign cycles for 
the industry on average.
---------------------------------------------------------------------------

    \359\ Note that Ferrari is shown as a separate entity in the 
table above but could be combined with other Fiat-owned companies 
for purposes of GHG compliance at the manufacturer's discretion. 
Also, in Section III.B., EPA is requesting comment on the concept of 
allowing companies that are able to demonstrate ``operational 
independence'' to be eligible for SVM alternative standards. 
However, the costs shown above are based on Ferrari meeting the 
primary program standards.
---------------------------------------------------------------------------

b. Why is the Relative Rate of Car Truck Stringency Appropriate?
    Table III-29 illustrates the importance of car-truck credit 
transfer for individual firms. For example, the OMEGA model projects 
for the proposed standards that in 2025, Daimler would under comply for 
trucks by 22 g/mile but over comply in their car fleet by 8 g/mi in 
order to meet their overall compliance obligation, while for Kia the 
OMEGA model projects that under the proposed standards Kia's truck 
fleet would over comply by 10 g/mi and under comply in their car fleet 
by 3 g/mi in order to meet their compliance obligations. However, for 
the fleet as a whole, we project only a relatively small degree of net 
credit transfers from the truck fleet to the car fleet.
    Table III-23 shows that the average costs for cars and trucks are 
also nearly equivalent for 2021 and 2025. For MY 2021, the average cost 
to comply with the car standards is $718, while it is $764 for trucks. 
For MY 2025, the average cost to comply with the car standards is 
$1,942, while it is $1,954 for trucks. These results are highly 
consistent with the small degree of net projected credit transfer 
between cars and trucks.
    The average cost for complying with the truck and car standards are 
similar, even though the level of stringency for trucks is increasing 
at a slower rate than for cars. As described in Section I.B.2 of the 
preamble, the proposed car standards are decreasing (in CO2) 
at a rate of 5% per year from MYs 2017-2025, while the proposed truck 
standards are decreasing at a rate of 3.5% per year on average from MYs 
2017-2021, then 5% per year thereafter till 2025. Given this difference 
in percentage rates, the close similarity in average cost stems from 
the fact that it is more costly to add the technologies to trucks (in 
general) than to cars as described in Chapter 1 of the draft RIA. 
Moreover, some technologies are not even available for towing trucks. 
These include EVs, PHEVs, Atkinson Cycle engines (matched with HEVs), 
and DCTs--the latter two are relatively cost effective. Together these 
result in a decrease in effectiveness potential for the heavier towing 
trucks compared to non-towing trucks and cars. In addition,, there is 
more mass reduction projected for these vehicles, but this comes at 
higher cost as well, as the cost per pound for mass reduction goes up 
with higher levels of mass reduction (that is, the cost increase curves 
upward rather than being linear). As described in greater detail in 
Chapter 2 of the joint TSD, these factors help explain the reason EPA 
and NHTSA are proposing to make the truck curve steeper relative to the 
2016 curve, thus resulting in a truck curve that is ``more parallel'' 
to cars than the 2016 truck curve.
    Taken together, our analysis shows that under the proposed 
standards, there is relatively little net trading between car and 
trucks; average costs for compliance with cars is similar to that of 
trucks in MY 2021 as well as MY 2025; and it is more costly to add 
technologies to trucks than to cars. These facts corroborate the 
reasonableness for increasing the slope of the truck curve. These 
observations also lead us to the conclusion that (at a fleet level) 
starting from MYs 2017-2021, the slower rate of increase for trucks 
compared to cars (3.5% compared to 5% per year), and the same rate of 
increase (5% per year) for both cars and trucks for MY 2022-2025 
results in car and truck standards that reflect increases in stringency 
over time that are comparable and consistent. There are no indications 
that either the truck or car standards are leading manufacturers to 
choose technology paths that lead to significant over or under 
compliance for cars or trucks, on an industry wide level. E.g., there 
is no indication that on average the proposed car standards would lead 
manufacturers to consistently under or over comply with the car 
standard in light of the truck standard, or vice versa. A consistent 
pattern across the industry of manufacturers choosing to under or over 
comply with a car or trucks standard could indicate that the car or 
truck standard should be evaluated further to determine if one was more 
or less stringent than might be appropriate in light of the technology 
choices available to manufacturers and their costs. As shown above, 
that is not the case for the proposed car and truck standards. However, 
EPA did evaluate a set of alternative standards that reflect separately 
increasing or decreasing the stringency of the car and truck standards, 
as discussed below.
c. What are the costs and advanced technology penetration rates for the 
alternative standards in relation to the proposed standards?
    Below we discuss results for the proposed car and truck standards 
compared to the truck alternatives evaluated (Alternatives 1 and 2), 
and then discuss the proposed car and truck standards compared to the 
car alternatives (Alternatives 3 and 4).
    Table III-30 presents our projected per-vehicle cost for the 
average car, truck and for the fleet in model year 2021 and 2025 for 
the proposal and for Alternatives 1 and 2. All costs are relative to 
the reference case (i.e. the fleet with technology added to meet the 
2016 MY standards). As can be seen, even though only the truck 
standards vary among these three scenarios, in each case the projected 
average car and truck costs vary as a result of car-truck credit 
transfer by individual companies. Table III-30 shows that compared to 
the proposal, Alternative 1 (with a 2021 and 2025 truck target 20 g/
mile less stringent, or 20 g/mile greater, than the proposal) is $281 
per vehicle less than the proposal in 2021 and $430 per vehicle less 
than the proposal in 2025. Alternative 2 (with a 2021 and 2025 truck 
target 20g/mile more stringent, or 20 g/mile less, than the proposal) 
is $343 per vehicle more than the proposal in 2021 and $516 per vehicle 
more than the proposal in 2025.
    Note that while the car and truck costs are nearly equivalent for 
Alternative 2 in 2021 and 2025, cars are over complying on average by 7 
g/mi, while trucks are under complying by 11 g/mi, thus indicating 
significant flow of credits from cars to trucks.\360\ The situation is 
reversed in Alternative 1, where cars are under complying on average by 
9 g/mi and trucks are over

[[Page 75056]]

complying by 16 g/mi, implying significant flow of credits from truck 
to cars.
---------------------------------------------------------------------------

    \360\ These detailed tables are in Chapter 3 of EPA's draft RIA.
    [GRAPHIC] [TIFF OMITTED] TP01DE11.095
    
    Table III-31 presents the per-vehicle cost estimates in MY 2021 by 
company for the proposal, Alternative 1 and Alternative 2. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole.

[[Page 75057]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.096

    Table III-32 presents the per-vehicle cost estimates in MY 2025 by 
company for the proposal, Alternative 1 and Alternative 2. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole, with Alternative 1 on the order of $200 to 
$600 per vehicle less expensive then the proposal, and Alternative 2 on 
the order of $200 to $800 per vehicle more expensive. For the fleet as 
a whole, the average cost for Alternative 1 is $430 less costly, while 
Alternative 2 is $516 more costly. Thus the incremental average cost is 
higher for the more stringent alternative than for an equally less 
stringent alternative standard. This is not a surprise as more 
technologies must be added to vehicles to meet tighter standards, and 
these technologies increase in cost in a non-linear fashion.

[[Page 75058]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.097

    The previous tables present the costs for the proposal and 
alternatives 1 and 2 at both the industry and company level. In 
addition to costs, another key is the technology required to meet 
potential future standards. The EPA assessment of the proposal, as well 
as Alternatives 1 and 2 predict the penetration into the fleet of a 
large number of technologies at various rates of penetration. A subset 
of these technologies are discussed below, while EPA's draft RIA 
Chapter 3 includes the details on this much longer list for the 
passenger car fleet, light-duty truck fleet, and the overall fleet at 
both the industry and individual company level. Table III-33 and Table 
III-34 present only a sub-set of the technologies EPA estimates could 
be used to meet the proposed standards as well as alternative 1 and 2 
in MY 2021. Table III-35 and Table III-36 show the same for 2025. The 
technologies listed in these tables are those for which there is a 
large difference in penetration rates between the proposal and the 
alternatives. We have not included here, for example, the penetration 
rates for improved high efficiency gear boxes because in 2021 our 
modeling estimates a 58% penetration of this technology across the 
total fleet for the proposal as well as for alternatives 1 and 2, or 8 
speed automatic transmissions which in 2021 we estimate at a 28% 
penetration

[[Page 75059]]

rate for the proposed standards as well as for alternatives 1 and 2. 
There are several other technologies (shown in the Chapter 3 of the 
DRIA) where there is little differentiation between the proposal and 
alternatives 1 and 2.
    Table III-33 shows that in 2021, for several technologies the 
proposal requires higher levels of penetration for trucks than 
alternative 1. For example, for trucks, compared to the proposal, 
alternative 1 leads to an 8% decrease in the 24 bar turbo-charged/
downsized engines, a 10% decrease in the penetration of cooled EGR, and 
a 12% decrease in the penetration of gasoline direct injection fuel 
systems. We also see that due to credit transfer between cars and 
trucks, the lower level of stringency considered for trucks in 
alternative 1 also impacts the penetration of technology to the car 
fleet--with alternative 1 leading to a 14% decrease in penetration of 
18 bar turbo-downsized engines, 5% decrease in penetration of 24 bar 
turbo-downsize engines, 8% decrease in penetration of 8 speed dual 
clutch transmissions, and a 19% decrease in penetration of gasoline 
direct injection fuel systems in the car fleet. For the more stringent 
alternative 2, we see increases in the penetration of many of these 
technologies projected for 2021, for the truck fleet as well as for the 
car fleet. Table III-34 shows these same overall trends but at the 
sales weighted fleet level in 2021.

[[Page 75060]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.098

    Table III-35 shows that in 2025, there is only a small change in 
many of these technology penetration rates when comparing the proposal 
to alternative 1 for trucks, and most of the change shows up in the car 
fleet. One important exception is hybrid electric vehicles, where the 
less stringent alternative 1 is projected to be met with a 4% decrease 
in penetration of HEVs compared to the proposal. As in 2021, we see 
that due to credit transfer between cars and trucks, the lower level of 
stringency considered for trucks in alternative 1 also impacts the car 
fleet penetration--with alternative 1 leading to a 8% decrease in 
penetration of 24 bar turbo-downsized engines, 12% decrease in 
penetration of cooled EGR, 6% decrease in penetration of HEVs, and a 2% 
decrease in penetration of electric vehicles. For the more stringent 
alternative 2, we see only small increases in the penetration of many 
of

[[Page 75061]]

these technologies projected for 2025, with a major exception being a 
significant 14% increase in the penetration of HEVs for trucks compared 
to the proposal, a 6% increase in the penetration of HEVs for cars 
compared to the proposal, and a 3% increase in the penetration of EVs 
for cars compared to the proposal.
[GRAPHIC] [TIFF OMITTED] TP01DE11.099

    The results are similar for Alternatives 3 and 4, where the truck 
standard stays at the proposal level and the car stringency varies, +20 
g/mi and -20 g/mi respectively. Table III-37 presents our projected 
per-vehicle cost for the average car, truck and for the fleet in model 
year 2021 and 2025 for the proposal and for Alternatives 3 and

[[Page 75062]]

4. Compared to the proposal, Alternative 3 (with a 2021 and 2025 car 
target 20 g/mile less stringent then the proposal) is $442 per vehicle 
less on average than the proposal in 2021 and $708 per vehicle less 
than the proposal in 2025. Alternative 4 (with a 2021 and 2025 car 
target 20g/mile more stringent then the proposal) is $635 per vehicle 
more on average than the proposal in 2021 and $923 per vehicle more 
than the proposal in 2025. These differences are even more pronounced 
than Alternatives 1 and 2. As in the analysis above, the costs 
increases are greater for more stringent alternatives than the reduced 
costs from the less stringent alternatives.
    Note that although the car and truck costs are not too dissimilar 
for cars and trucks for Alternative 3 in 2025, what is not shown is 
that cars are over complying by 5 g/mi, while trucks are under 
complying by 7 g/mi, thus indicating significant flow of credits from 
cars to trucks. The situation is reversed in Alternative 4, where cars 
are under complying by 6 g/mi and trucks are over complying by 12 g/mi 
implying significant flow of credits from truck to cars.
[GRAPHIC] [TIFF OMITTED] TP01DE11.100

    Table III-38 presents the per-vehicle cost estimates in MY 2021 by 
company for the proposal, Alternative 3 and Alternative 4. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole, with Alternative 3 being a several hundred 
dollars per vehicle less expensive then the proposal, and Alternative 4 
being several hundred dollars per vehicle more expensive (with larger 
increment for more stringent than less stringent alternatives). In some 
case the differences exceed $1,000 (e.g. BMW, Daimler, Geely/Volvo, 
Mazda, Spyker/Saab, and Tata).

[[Page 75063]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.101

    Table III-39 presents the per-vehicle cost estimates in MY 2025 by 
company for the proposal, Alternative 3 and Alternative 4. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole, with Alternative 3 on the order of $500 to 
$1,400 per vehicle less expensive then the proposal, and Alternative 4 
on the order of $700 to $1,600 per vehicle more expensive. Again these 
differences are more pronounced for the car alternatives than the truck 
alternatives.

[[Page 75064]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.102

    Table III-40 shows that in 2021, for several technologies 
Alternative 3 leads to lower levels of penetration for cars as well as 
trucks compared to the proposal. For example (on cars) there is an 13% 
decrease in the 18 bar turbo-charged/downsized engines, a 5% decrease 
in the penetration of cooled EGR, and a 22% decrease in the penetration 
of gasoline direct injection fuel systems. We also see that due to 
credit transfer between cars and trucks, the lower level of stringency 
considered for cars in alternative 3 also impacts the penetration of 
technology to the truck fleet--with alternative 3 leading to 12% 
decrease in penetration of 24 bar turbo-downsized engines, 13% decrease 
in penetration of cooled EGR, and a 17% decrease in penetration of 
gasoline direct injection fuel systems in the car fleet. For the more 
stringent alternative 4, we see increases in the penetration of many of 
these technologies projected for 2021, for the truck fleet as well as 
for the car fleet. Table III-41 shows these same overall trends but at 
the sales weighted fleet level in 2021.

[[Page 75065]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.103

    Table III-42 shows that in 2025, there is only a small change in 
many of these technology penetration rates when comparing the proposal 
to alternative 3 for cars, and most of the change shows up in the car 
fleet. There are a few

[[Page 75066]]

exceptions: There is a 15% decrease in the penetrate rate of 24 bar 
bmep engines (made up somewhat by a 4% increase in 18 bar engines); 
there is 20% less EGR boost and GDI, and 9% less hybrid electric 
vehicles compared to the proposal. As in 2021, we see that due to 
credit transfer between cars and trucks at the lower level of 
stringency considered for cars in alternative 3 also impacts the truck 
fleet penetration--with alternative 3 leading to 7% decrease in 
penetration of HEVs. For the more stringent alternative 4, we see only 
small increases in the penetration of many of these technologies 
projected for 2025, with a major exception being a significant 9% 
increase in the penetration of HEVs for cars compared to the proposal 
(along with a drop in advanced engines), and a 20% increase in the 
penetration of HEVs for trucks compared to the proposal.
[GRAPHIC] [TIFF OMITTED] TP01DE11.104


[[Page 75067]]


    The trend for Alternatives 3 and 4 have thus far been that the 
impacts have been more extreme than Alternatives 1 and 2 compared to 
the proposal. Thus we will focus the discussion of feasibility on 
Alternatives 1 and 2 (as the same will also then apply to 3 and 4 
respectively).
    As stated above, EPA's OMEGA analysis indicates that there is a 
technology pathway for all manufacturers to build vehicles that would 
meet the proposed standards as well as the alternative standards.\361\ 
The differences lie in the per-vehicle costs and the associated 
technology penetrations. With the proposed standards, we estimate that 
the average per-vehicle cost is $734 in 2021 and $1,946 in 2025. We 
have also shown that the relative rate of increase in the stringencies 
of cars and trucks are at an appropriate level such that there is 
greater balance amongst the manufacturers where the distribution of the 
burden is relatively evenly spread. In Section I.C of the Preamble, we 
also showed that the benefits of the program are significant, and that 
this cost can be recovered within the first four years of vehicle 
ownership.
---------------------------------------------------------------------------

    \361\ Except Ferrari.
---------------------------------------------------------------------------

    EPA's analysis of the four alternatives indicates that under all of 
the alternatives the projected response of the manufacturers is to 
change both their car and truck fleets. Whether the car or truck 
standard is being changed, and whether it is being made more or less 
stringent, the response of the manufacturers is to make changes across 
their fleet, in light of their ability to transfer credits between cars 
and trucks. For example, Alternatives 1 and 3 make either the car or 
trucks standard less stringent, and keep the other standard as is. For 
both alternatives, manufacturers increase their projected 
CO2 g/mile level achieved by their car fleet, and to a 
lesser extent their truck fleet. For alternatives 2 and 4, where either 
the truck or car fleet is made more stringent, and the other standard 
is kept as is, manufacturers reduce the projected CO2 g/mile 
level achieved by both their car and trucks fleets, in a generally 
comparable fashion. This is summarized in Table III-44 for MY 2025.
[GRAPHIC] [TIFF OMITTED] TP01DE11.105

    This demonstrates that the four alternatives are indicative of what 
would happen if EPA increased the stringency of both the car and truck 
fleet at the same time, or decreased the stringency of the car and 
truck fleet at the same time. E.g., Alternative 4 would be comparable 
to an alternative where EPA made the car standard more stringent by 14 
gm/mi and the truck standard by 10 gm/mile. Under such an alternative, 
there would logically be little if any net transfer of credits between 
cars and trucks. In that context, the results from alternatives 1 and 3 
can be considered as indicative of what would be expected if EPA 
decreased the stringency of both the car and truck standards, and 
alternatives 2 and 4 as indicative of what would happen if EPA 
increased the stringency of both the car and truck standards. In 
general, it appears that decreasing the stringency of the standards 
would lead the manufacturers to focus more on increasing the 
CO2 gm/mile of cars than trucks (alternatives 1 and 3). 
Increasing the stringency of the car and truck standards would 
generally lead to comparable increases in gm/mi for both cars and 
trucks.
    Alternatives 1 and 3 would achieve significantly lower reductions, 
and would therefore forego important benefits that the proposed 
standards would achieve at reasonable costs and

[[Page 75068]]

penetrations of technology. EPA judges that there is not a good reason 
to forego such benefits, and is not proposing less stringent standards 
such as alternatives 1 and 3.
    Alternatives 2 and 4 increase the per vehicle estimates to $1,077 
and $1,369 respectively in 2021 and $2,462 and $2,869 respectively in 
2025. This increase in cost from the proposal originates from the 
dramatic increases in the costlier electrification technologies, such 
as HEVs and EVs. The following tables and charts show the technology 
penetrations by manufacturer in greater detail.
    Table III-45 and later tables describe the projected penetration 
rates for the OEMs of some key technologies in MY 2021 and MY2025 under 
the proposed standards. TDS27, HEV, and PHEV+EV technologies represent 
the most costly technologies added in the package generation process, 
and the OMEGA model generally adds them as one of the last technology 
choices for compliance. They are therefore an indicator of the extent 
to which the stringency of the standard is pushing the manufacturers to 
the most costly technology. Cost (as shown above) is a similar 
indicator.
    Table III-45 describes technology penetration for MY2021 under the 
proposal.

[[Page 75069]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.106

    It can be seen from this table that the larger volume manufacturers 
have levels of advanced technologies that are below the phase in caps 
(described in the next table). On the other hand, smaller ``luxury'' 
volume manufacturers tend to

[[Page 75070]]

require higher levels of these technologies. BMW, Daimler, Volvo, 
Porsche, Saab, Jaguar/LandRover, and VW all reach the maximum 
penetration cap for HEVs (30%) in 2021. Suzuki is the only other 
company with greater than 20% penetration of HEVs and only two 
manufacturers have greater than 10% penetration of PH/EVs: Porsche and 
Saab. Together these seven ``luxury'' vehicle manufacturers represent 
12% of vehicle sales and their estimated cost of compliance with 2021 
proposed standards is $2,178 compared to $744 for the others.
    It is important to review some of the caps or limits on the 
technology phase in rates described in Chapter 3.5.2.3 of the joint TSD 
as it relates to the remainder of this discussion. These are upper 
limits on the penetration rates allowed under our modeling, and reflect 
an estimate of the physical limits for such penetration. It is not a 
judgment that rates below that cap are practical or reasonable, and is 
intended to be more of a physical limit of technical capability in 
light of conditions such as supplier capacity, up-front investment 
capital requirements, manufacturability, and other factors. For 
example, in MY 2010, there are presently 3% HEVs in the new vehicle 
fleet. In MYs 2015, 2021 and 2025 we project that this cap on 
technology penetration rate increases to 15%, 30% and 50% respectively. 
For PH/EVs in MY 2010, there is practically none of these technologies. 
In MYs 2015, 2021 and 2025 we project that this cap on technology 
penetration rate increases to approximately 5%, 10% and 15% 
respectively for EVs and PHEVs separately. These highly complex 
technologies also have the slowest penetration phase-in rates to 
reflect the relatively long lead time required to implement into 
substantial fractions of the fleet subject to the manufacturers' 
product redesign schedules. In contrast, an advanced technology still 
under development based on an improved engine design, TDS27, has a cap 
on penetration phase in rate in MYs 2015, 2021, and 2025 of 0%, 15%, 
and 50% indicative of a longer lead time to develop the technology, but 
a relatively faster phase in rate once the technology is ``ready'' 
(consistent with other ``conventional'' evolutionary improvements). 
Table III-46 summarizes the caps on the phase in rates of some of the 
key technologies. A penetration rate result from the analysis that 
approaches the caps for these technologies for a given manufacturer is 
an indication of how much that manufacturer is being ``pushed'' to 
technical limits by the standards. This will be in direct correlation 
to the cost of compliance for that same manufacturer.
[GRAPHIC] [TIFF OMITTED] TP01DE11.108

    Table III-47 shows the technology penetrations for Alternative 2. 
Immediately striking is the penetration rates of truck HEVs in the 
fleet: Even in 2021, it nearly doubles in comparison to the proposal. 
The Ford truck fleet (to take one of the largest volume manufacturers 
as an example) increases from 2% HEVs in the proposal trucks to 16% in 
Alternative 2, an eightfold increase.
    There are other significant increases in the larger manufacturers 
and even more dramatic increases in the HEV penetration in smaller 
manufacturers' fleets. For example, Suzuki cars now reach the maximum 
technology penetration cap of 30% for HEVs and Mitsubishi now has 20% 
HEVs. Also, there are now four manufacturers with total fleet PH/EV 
penetration rates equal to 10% or greater.
    The larger volume manufacturers have an estimated per vehicle cost 
of compliance with 2021 alternative standards of $1,044, which is $555 
higher than the proposed standards. The seven ``luxury'' vehicle 
manufacturers now have estimated costs of $2,733, which is $300 higher 
than the proposed standards (See Table III-12 above).

[[Page 75071]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.109

BILLING CODE 4910-59-P
    Table III-48 shows the technology penetrations for Alternative 4 
for MY 2021. The large volume manufacturer, Ford now has a 25% 
penetration rate of

[[Page 75072]]

truck HEVs (a 23% increase compared to the proposed standards) and the 
fleet penetration has gone up 11 fold for this company in comparison to 
the proposed standards.
    Mitsubishi, and Suzuki cars now reach the maximum technology 
penetration cap of 30% for HEVs, and Mazda, Subaru cars as well as Ford 
trucks now have greater than 20% HEVs. Also, there are now six 
manufacturers with PH/EV penetration rates greater than 10%.
    The larger volume manufacturers now have an estimated per vehicle 
cost of compliance with 2021 alternative standards of $1,428, which is 
$683 higher than the proposed standards. The seven ``luxury'' vehicle 
manufacturers now have estimated costs of $3,499, which is $1,320 
higher than the proposed standard (See Table III-32 above). For the 
seven luxury manufacturers, this per vehicle cost exceeds the costs 
under the proposal for complying with the considerably more stringent 
2025 standards.

[[Page 75073]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.110

    Table III-49 shows the technology penetrations for the proposed 
standards in 2025. The larger volume manufacturers have levels of 
advanced technologies that are below the phase in caps (described in 
the next table),

[[Page 75074]]

though there are some notably high penetration rates for truck HEVs for 
Ford and Nissan.\362\ For the fleet in general, we note a 3% 
penetration rate of PHEV+EVs--it is interesting to note that this is 
the penetration rate of HEVs today. EPA believes that there is 
sufficient lead time to have this level of penetration of these 
vehicles by 2025. Case in point, it has taken approximately 10 years 
for HEV penetration to get to the levels that we see today, and that 
was without an increase in the stringency of passenger car CAFE 
standards.
---------------------------------------------------------------------------

    \362\ EPA has not conducted an analysis of pickup truck HEV 
penetration rates compared to the remainder of the truck fleet. This 
may be conducted for the final rule.

---------------------------------------------------------------------------

[[Page 75075]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.111

    Six of the seven luxury vehicle manufacturers reach the maximum 
penetration cap on their truck portion of their fleet; however, no 
company reaches 50% for their combined fleet. The seven do have over 
30%

[[Page 75076]]

penetration rate of HEVs, while Suzuki is the only company to have 
between 20 and 30% HEVs. Six of the 7 luxury vehicle manufacturers also 
have greater than 10% penetration of PH/EVs (which has a total cap of 
29%). The only company to have large penetration rates (>15%) of TDS27 
is Jaguar/LandRover at 29%.
    The estimated per vehicle cost of compliance with 2025 proposed 
standards is $1,943 for the larger volume manufacturers and $3,133 for 
the seven ``luxury'' vehicle manufacturers.
    Table III-50 shows the technology penetrations for Alternative 2 in 
2025. In this alternative Chrysler trucks nearly double their 
penetration rate of HEVs along with dramatic increases in car and truck 
PH/EVs. GM has a very large increase in truck HEVs as well: From 3% in 
the proposed to 39% in the alternative standards along with a doubling 
of PH/EVs. Toyota also has double the number of HEVs. In this 
alternative there are many more companies with 20-30% HEVs: Chrysler, 
Ford, GM, Mitsubishi, Nissan, Subaru, Suzuki, and Toyota. Suzuki (in 
addition to the seven) now also has 10% or greater penetration of PH/
EVs. Ford, GM, Chrysler, and Nissan now have more than 20% penetration 
of HEVs in trucks.
    The estimated per vehicle cost of compliance with 2025 alternative 
2 standards is $2,354, which is $410 higher than the proposed 
standards. The seven luxury vehicle manufacturers now have costs of 
$3,616, which is $483 higher than the proposed standards. See Table 
III-32 above.

[[Page 75077]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.112

    Table III-51 shows the technology penetrations for Alternative 4 in 
2025. In this alternative every company except Honda, Hyundai, Kia have 
greater than 20% HEVs. Many of the large volume manufacturers have even 
more dramatic

[[Page 75078]]

increases in the volumes of P/H/EVs than in Alternative 2. Ford, GM, 
Nissan, and Toyota have greater than 20 or 30% penetration rates of 
HEVs on trucks. Mazda, Mitsubishi, Subaru, Suzuki (in addition to the 
seven) now also have 10% or greater penetration of PH/EVs, while 
Daimler, Volvo, Porsche, Saab, and VW have over 20%.
    The estimated per vehicle cost of compliance with 2025 alternative 
standards is $2,853, which is $910 higher than the proposed standards. 
The seven luxury vehicle manufacturers now have costs of $4,481, which 
is $1,348 higher than the proposed standards. Much of this non-linear 
increase in cost is due to increased penetration of PHEVs and EVs (more 
so than HEVs).

[[Page 75079]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.113


[[Page 75080]]


d. Summary of the Technology Penetration Rates and Costs From the 
Alternative Scenarios in Relation to the Proposed Standards
    As described above, alternatives 2 and 4 would lead to significant 
increases in the penetration of advanced technologies into the fleet 
during the time frame of these standards. In general, both alternatives 
would lead to an increase in the average penetration rate for advanced 
technologies in 2021, in effect accelerating some of the technology 
penetration that would otherwise occur in the 2022-2025 timeframe. For 
the fleet as a whole, in 2021 alternative 2 would lead to a significant 
increase in cooled EGR use and a limited increase in HEV use, while 
alternative 4 would lead to an even larger increase in cooled EGR as 
well as a significant increase in HEV use. In 2025 these alternatives 
would dramatically affect penetration rates of HEVs, EVs, and PHEVs, in 
each case leading to very significant increases on average for the 
fleet. Again, Alternative 4 would lead to greater penetration rates 
than Alternative 2. When one considers the technology penetration rates 
for individual manufacturers, in 2021 the alternatives lead to much 
higher increases than average for some individual large volume 
manufacturers. Smaller volume manufacturers start out with higher 
penetration rates and are pushed to even higher levels. This result is 
even more pronounced in 2025.
    This increase in technology penetration rates raises serious 
concerns about the ability and likelihood manufacturers can smoothly 
implement the increased technology penetration in a fleet that has so 
far seen limited usage of these technologies, especially for trucks--
and for towing trucks in particular. While this is more pronounced for 
2025, there are still concerns for the 2021 technology penetration 
rates. Although EPA believes that these penetration rates are, in the 
narrow sense, technically achievable, it is more a question of judgment 
whether we are confident at this time that these increased rates of 
advanced technology usage can be practically and smoothly implemented 
into the fleet--a reason the agencies are attempting to encourage more 
utilization of this technology with the proposed HEV pickup truck 
credits but being reasonably prudent in proposing standards that could 
de facto force high degrees of penetration of this technology on towing 
trucks.\363\
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    \363\ See 76 FR at 57220 discussing a similar issue in the 
context of the standards for heavy duty pickups and vans: ``Hybrid 
electric technology likewise could be applied to heavy-duty 
vehicles, and in fact has already been so applied on a limited 
basis. However, the development, design, and tooling effort needed 
to apply this technology to a vehicle model is quite large, and 
seems less likely to prove cost-effective in this time frame, due to 
the small sales volumes relative to the light-duty sector. Here 
again, potential customer acceptance would need to be better 
understood because the smaller engines that facilitate much of a 
hybrid's benefit are typically at odds with the importance pickup 
truck buyers place on engine horsepower and torque, whatever the 
vehicle's real performance''.
---------------------------------------------------------------------------

    EPA notes that the same concerns support the proposed decision to 
steepen the slope of the truck curve in acknowledgement of the special 
challenges these larger footprint trucks (which in many instances are 
towing vehicles) would face. Without the steepening, the penetration 
rates of these challenging technologies would have been even greater.
    From a cost point of view, the impacts on cost track fairly closely 
with the technology penetration rates discussed above. The average cost 
increases under Alternatives 2 and 4 are significant for 2021 
(approximately $300 and $600), and for some manufacturers they result 
in very large cost increases. For 2025 the cost increases are even 
higher (approximately $500 and $900). Alternative 4, as expected, is 
significantly more costly than alternative 2. From another perspective, 
the average cost of compliance to the industry on average is $23 and 
$44 billion for the 2021 and 2025 proposed standards respectively. 
Alternative 2 will cost the industry on average $7 and $9 billion in 
excess, while Alternative 4 will cost the industry on average $10 and 
$16 billion in excess of the costs for the proposed standards. These 
are large increases in percentage terms, ranging from approximately 25% 
to 45% in 2021, and from approximately 20% to 35% in 2025.
    Per vehicle costs will also increase dramatically including for 
some of the largest, full-line manufacturers. Under Alternative 2, per 
vehicle costs for Chrysler, Ford, GM, Honda and Nissan increase by an 
estimated one-third to nearly double (200%) to meet 2021 standards and 
from roughly 25% to 45% to meet 2025 standards (see Table III-31 and 
Table III-32 above). The per-vehicle costs to meet Alternative 4 for 
these manufacturers is significantly greater and in the same 
proportions, see Table III-38 and Table III-39.
    As noted, these cost increases are associated especially with 
increased utilization of advanced technologies. As shown in Figure 
below, HEV+PHEV+EV penetration are projected to increase in 2025 from 
17% in the proposed standards to 28% and to nearly 35% under 
Alternatives 2 and 4 respectively for manufacturers with annual sales 
above 500,000 vehicles (including Chrysler, Ford, GM, Honda, Hyundai, 
Nissan, Toyota and VW). The differences are less pronounced for 2021, 
but still (in alternative 4) over double the penetration level of the 
proposal. EPA regards these differences as significant, given the 
factors of expense, consumer cost, consumer acceptance, and potentially 
(for 2021) lead time.
BILLING CODE 491-59-P

[[Page 75081]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.114

    The Figure below shows the HEV+PHEV+EV penetration for 
manufacturers with sales below 500,000 but exceeding 30,000 (including 
BMW, Daimler, Volvo, Kia, Mazda, Mitsubishi, Porsche, Subaru, Suzuki, 
and Jaguar/LandRover while excluding Aston Martin, Ferrari, Lotus, 
Saab, and Tesla). While the penetration rates of these advanced 
technologies also increase, the distribution within these are shifting 
to the higher cost EVs and PHEVs as noted above.

[[Page 75082]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.115

    EPA did not model a number of flexibilities when conducting the 
analysis for the NPRM. For example, PHEV, EV and fuel cell vehicle 
incentive multipliers for 2017-2021, full size pickup truck HEV 
incentive credits, full size pickup truck performance based incentive 
credits, and off-cycle credits, were not explicitly captured. We plan 
on modeling these flexibilities for the final rule. For this proposal, 
while we have not been able to explicitly model the impacts on the 
program costs, the impact will only be to reduce the estimated costs of 
the program for most manufacturers. From an industry wide perspective, 
EPA expects that their overall impact on costs, technology penetration, 
and emissions reductions and other benefits will be limited. They will 
provide some additional, important flexibility in achieving the 
proposed levels and promoting more advanced technology, on a case by 
case basis, but their impact is not expected to be of enough 
significance to warrant a change to the standards proposed. Instead 
they are expected to support the reasonableness of the proposed 
standards.
    Overall, EPA believes that the characteristics and impacts of these 
and other alternative standards generally reflect a continuum in terms 
of technical feasibility, cost, lead time, consumer impacts, emissions 
reductions and oil savings, and other factors evaluated under section 
202 (a). In determining the appropriate standard to propose in this 
context, EPA judges that the proposed standards are appropriate and 
preferable to more stringent alternatives based largely on 
consideration of cost--both to manufacturers and to consumers--and the 
potential for overly aggressive penetration rates for advanced 
technologies relative to the penetration rates seen in the proposed 
standards, especially in the face of unknown degree of consumer 
acceptance of both the increased costs and the technologies themselves. 
At the same time, the proposal helps to address these issues by 
providing incentives to promote early and broader deployment of 
advanced technologies, and so provides a means of encouraging their 
further penetration while leaving manufacturers alternative technology 
choices. EPA thus judges that the increase in technology penetration 
rates and the increase in costs under the increased stringency for the 
car and truck fleets reflected in alternatives 2 and 4 are such that it 
would not be appropriate to propose standards that would increase the 
stringency of the car and truck fleets in this manner.
    The two tables below shows the year on year costs as described in 
greater detail in Chapter 5 of the RIA. These projections show a steady 
increase in costs from 2017 thru 2025 (as interpolated).

[[Page 75083]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.116


[[Page 75084]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.117

    Figure 7 below shows graphically the year on year average costs 
presented in Table III-53 with the per vehicle costs on the left axis 
and the projected CO2 target standards on the right axis. It 
is quite evident and intuitive that as the stringency of the standard 
gets tighter, the average per vehicle costs increase. It is also clear 
that the costs for cars exceed that of trucks for the early years of 
the program, but then progress upwards together starting in MY 2021. It 
is interesting to note that the slower rate of progression of the 
standards for trucks seems to result in a slower rate of increase in 
costs for both cars and trucks. This initial slower rate of stringency 
for trucks is appropriate due primarily concerns over technology 
penetration rates and disproportionately higher costs for adding 
technologies to trucks than cars, as described in Section III.D.6.b 
above. The figure below corroborates these conclusions and further 
demonstrates that based on the smooth progression of average costs 
(from 2017-2025), the year on year increase in stringency of the 
standards is also reasonable. Though there are undoubtedly a range of 
minor modifications that could be made to the progression of standards, 
EPA believes that the progression proposed is reasonable and 
appropriate. Also, EPA believes that any progression of standards that 
significantly deviates from the proposed standards (such as those in 
Alternatives 1 through 4) are much less appropriate for the reasons 
provided in the discussion above.
[GRAPHIC] [TIFF OMITTED] TP01DE11.999


[[Page 75085]]


7. To what extent do any of today's vehicles meet or surpass the 
proposed MY 2017-2025 CO2 footprint-based targets with 
current powertrain designs?
    In addition to the analysis discussed above regarding what 
technologies could be added to vehicles in order to achieve the 
projected CO2 obligation for each automotive company under 
the proposed MY 2017 to 2025 standards, EPA performed an assessment of 
the light-duty vehicles available in the market today to see how such 
vehicles compare to the proposed MY 2017-2025 footprint-based standard 
curves. This analysis supports EPA's overall assessment that there are 
a broad range of effective and available technologies that could be 
used to achieve the proposed standards, as well as illustrating the 
need for the lead-time between today and MY 2017 to MY 2025 in order 
for continued refinement of today's technologies and their broader 
penetration across the fleet for the industry as a whole as well as 
individual companies. In addition, this assessment supports EPA's view 
that the proposed standards would not interfere with consumer utility--
footprint-attribute standards provide manufacturers with the ability to 
offer consumers a full range of vehicles with the utility customers 
want, and does not require or encourage companies to just produce small 
passenger cars with very low CO2 emissions.
    Using publicly available data, EPA compiled a list of available 
vehicles and their 2-cycle CO2 emissions performance (that 
is, the performance over the city and highway test cycles required by 
this proposal). Data is currently available for all MY 2011 vehicles 
and some MY 2012 vehicles. EPA gathered vehicle footprint data from EPA 
reports, manufacturer submitted CAFE reports, and manufacturer Web 
sites.
    EPA evaluated these vehicles against the proposed CO2 
footprint-based standard curves to determine which vehicles would meet 
or exceed the proposed MY 2017-MY 2025 footprint-based CO2 
targets assuming air conditioning credit generation consistent with 
today's proposal. Under the proposed 2017-2025 greenhouse gas emissions 
standards, each vehicle will have a unique CO2 target based 
on the vehicle's footprint. However, it is important to note that the 
proposed CO2 standard is a company-specific sales weighted 
fleet-wide standard for each company's passenger cars and truck fleets 
calculated using the proposed footprint-based standard curves. No 
individual vehicle is required to achieve a specific CO2 
target. In this analysis, EPA assumed usage of air conditioner credits 
because air conditioner improvements are considered to be among the 
cheapest and easiest technologies to reduce greenhouse gas emissions, 
manufacturers are already investing in air conditioner improvements, 
and air conditioner changes do not impact engine, transmission, or 
aerodynamic designs so assuming such credits does not affect 
consideration of cost and leadtime for use of these other technologies. 
In this analysis, EPA assumed increasing air conditioner credits over 
time with a phase-in of alternative refrigerant for the generation of 
HFC leakage reduction credits consistent with the assumed phase-in 
schedule discussed in Section III.C.I. of this preamble. No adjustments 
were made to vehicle CO2 performance other then this 
assumption of air conditioning credit generation. Under this analysis, 
a wide range of existing vehicles would meet the MY 2017 proposed 
CO2 targets, and a few meet even the proposed MY 2025 
CO2 targets. The details regarding this assessment are in 
Chapter 3 of the EPA Draft RIA.
    This assessment shows that a significant number of vehicles models 
sold today (nearly 40 models) would meet or be lower than the proposed 
MY 2017 footprint-based CO2 targets with current powertrain 
designs, assuming air conditioning credit generation consistent with 
our proposal. The list of vehicles includes a full suite of vehicle 
sizes and classes, including midsize cars, minivans, sport utility 
vehicles, compact cars, small pickup trucks and full size pickup 
trucks--all of which meet the proposed MY 2017 target values with no 
technology improvements other than air conditioning system upgrades. 
These vehicles utilize a wide variety of powertrain technologies and 
operate on a variety of different fuels including gasoline, diesel, 
electricity, and compressed natural gas. Nearly every major 
manufacturer currently produces vehicles that would meet or exceed the 
proposed MY 2017 footprint CO2 target with only improvements 
in air conditioning systems. For all of these vehicle classes the MY 
2017 targets are achieved with conventional gasoline powertrains, with 
the exception of the full size (or ``standard'') pickup trucks. In the 
case of full size pickups trucks, only HEV versions of the Chevrolet 
Silverado and the GMC Sierra fall into this category (though the HEV 
Silverado and Sierra meet not just the MY 2017 footprint-based 
CO2 targets with A/C improvements, but their respective 
targets through MY 2022). As the CO2 targets become more 
stringent each model year, fewer MY 2011 and MY 2012 vehicles achieve 
or surpass the proposed CO2 targets, in particular for 
gasoline powertrains. While approximately 15 unique gasoline vehicle 
models achieve or surpass the MY 2017 targets, this number falls to 
approximately 11 for the MY 2018 targets, 9 for the model year 2019 
targets, and only 2 unique gasoline vehicle models can achieve the MY 
2020 proposed CO2 targets with A/C improvements.
    EPA also assessed the subset of these vehicles that have emissions 
within 5%, of the proposed CO2 targets. As detailed in 
Chapter 3 of the EPA Draft RIA, the analysis shows that there are more 
than twenty additional vehicle models (primarily with gasoline and 
diesel powertrains) that are within 5% of the proposed MY 2017 
CO2 targets, including compact cars, midsize cars, large 
cars, SUVs, station wagons, minivans, small and standard pickup trucks. 
EPA also receives projected sales data prior to each model year from 
each manufacturer. Based on this data, approximately 7% of MY 2011 
sales will be vehicles that would meet or be better than the proposed 
MY 2017 targets for those vehicles, requiring only improvements in air 
conditioning systems. In addition, nearly 15% of projected MY 2011 
sales would be within 5% of the proposed MY 2017 footprint 
CO2 target with only simple improvements to air conditioning 
systems, a full six model years before the proposed standard takes 
effect. With improvements to air conditioning systems, the most 
efficient gasoline internal combustion engines would meet the MY 2020 
proposed footprint targets. After MY 2020, the only current vehicles 
that continue to meet the proposed footprint-based CO2 
targets (assuming improvements in air conditioning) are hybrid-
electric, plug-in hybrid-electric, and fully electric vehicles. 
However, the proposed MY 2021 standards, if finalized, would not need 
to be met for another 9 years. Today's Toyota Prius, Ford Fusion 
Hybrid, Chevrolet Volt, Nissan Leaf, Honda Civic Hybrid, and Hyundai 
Sonata Hybrid all meet or surpass the proposed footprint-based 
CO2 targets through MY 2025. In fact, the current Prius, 
Volt, and Leaf meet the proposed 2025 CO2 targets without 
air conditioning credits.
    This assessment of MY 2011 and MY 2012 vehicles makes it clear that 
HEV technology (and of course EVs and PHEVs) is capable of achieving 
the MY 2025 standards. However, as discussed

[[Page 75086]]

earlier in this section, EPA's modeling projects that the MY 2017-2025 
standards can primarily be achieved by advanced gasoline vehicles--for 
example, in MY 2025, we project more than 80 percent of the new 
vehicles could be advanced gasoline powertrains. The assessment of MY 
2011 and MY 2012 vehicles available in the market today indicates 
advanced gasoline vehicles (as well as diesels) can achieve the targets 
for the early model years of the proposed standards (i.e., model years 
2017-2020) with only improvements in air conditioning systems. However, 
significant improvements in technologies are needed and penetrations of 
those technologies must increase substantially in order for individual 
manufacturers (and the fleet overall) to achieve the proposed standards 
for the early years of the program, and certainly for the later years 
(i.e., model years 2021-2025). These technology improvements are the 
very technologies EPA and NHTSA describe in detail in Chapter 3 of the 
draft Joint Technical Support Document and which we forecasted 
penetration rates earlier in this section III.D, and they include for 
example: gasoline direct injection fuel systems; downsized and 
turbocharged gasoline engines (including in some cases with the 
application of cooled exhaust gas recirculation); continued 
improvements in engine friction reduction and low friction lubricants; 
transmissions with an increased number of forward gears (e.g., 8 
speeds); improvements in transmission shifting logic; improvements in 
transmission gear box efficiency; vehicle mass reduction; lower rolling 
resistance tires, and improved vehicle aerodynamics. In many (though 
not all) cases these technologies are beginning to penetrate the U.S. 
light-duty vehicle market.
    In general, these technologies must go through the automotive 
product development cycle in order to be introduced into a vehicle. In 
some cases additional research is needed before the technologies' 
CO2 benefits can be fully realized and large-scale 
manufacturing can be achieved. The subject of technology penetration 
phase-in rates is discussed in more detail in Chapter 3.5 of the draft 
Joint Technical Support Document. In that Chapter, we explain that why 
many CO2 reducing technologies should be able to penetrate 
the new vehicle market at high levels between now and MY 2016. There 
are also many of the key technologies we project as being needed to 
achieve the proposed 2017-2025 standards which will only be able to 
penetrate the market at relatively low levels (e.g., a maximum level of 
30% or less) by MY 2016, and even by MY 2021. These include important 
powertrain technologies such as 8-speed transmissions and second or 
third generation downsized engines with turbocharging,
    The majority of these technologies must be integrated into vehicles 
during the product redesign schedule, which is typically on a 5-year 
cycle. EPA discussed in the MY 2012-2016 rule the significant costs and 
potential risks associated with requiring major technologies to be 
added in-between the typical 5-year vehicle redesign schedule (see 75 
FR at 25467-68, May 7, 2010). In addition, engines and transmissions 
generally have longer lifetimes then 5 years, typically on the order of 
10 years. Thus major powertrain technologies generally take longer to 
penetrate the new vehicle fleet then can be done in a 5-year redesign 
cycle. As detailed in Chapter 3.5 of the draft Joint TSD, EPA projects 
that 8-speed transmissions could increase their maximum penetration in 
the fleet from 30% in MY 2016 to 80% in 2021 and to 100% in MY 2025. 
Similarly, we project that second generation downsized and turbocharged 
engines (represented in our assessment as engines with a brake-mean 
effective pressure of 24 bars) could penetrate the new vehicle fleet at 
a maximum level of 15% in MY 2016, 30% in MY 2021, and 75% in MY 2025. 
When coupled with the typical 5-year vehicle redesign schedule, EPA 
projects that it is not possible for all of the advanced gasoline 
vehicle technologies we have assessed to penetrate the fleet in a 
single 5-year vehicle redesign schedule.
    Given the status of the technologies we project to be used to 
achieve the proposed MY2017-2025 standards and the product development 
and introduction process which is fairly standard in the automotive 
industry today, our assessment of the MY2011 and MY2012 vehicles in 
comparison to the proposed standards supports our overall feasibility 
assessment, and reinforces our assessment of the lead time needed for 
the industry to achieve the proposed standards.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview
    This section summarizes EPA's comprehensive program to ensure 
compliance with emission standards for carbon dioxide (CO2), 
nitrous oxide (N2O), and methane (CH4), as 
described in Section III.B. An effective compliance program is 
essential to achieving the environmental and public health benefits 
promised by these mobile source GHG standards. EPA's GHG compliance 
program is designed around two overarching priorities: (1) to address 
Clean Air Act (CAA) requirements and policy objectives; and (2) to 
streamline the compliance process for both manufacturers and EPA by 
building on existing practice wherever possible, and by structuring the 
program such that manufacturers can use a single data set to satisfy 
both GHG and Corporate Average Fuel Economy (CAFE) testing and 
reporting requirements. The EPA and NHTSA programs replicate the 
compliance protocols established in the MY 2012-2016 rule.\364\ The 
certification, testing, reporting, and associated compliance activities 
track current practices and are thus familiar to manufacturers. As is 
the case under the 2012-2016 program, EPA and NHTSA have designed a 
coordinated compliance approach for 2017-2025 such that the compliance 
mechanisms for both GHG and CAFE standards are consistent and non-
duplicative. Readers are encouraged to review the MY 2012-2016 final 
rule for background and a detailed description of these certification, 
compliance, and enforcement requirements.
---------------------------------------------------------------------------

    \364\ 75 FR 25468.
---------------------------------------------------------------------------

    Vehicle emission standards established under the CAA apply 
throughout a vehicle's full useful life. Today's rule establishes fleet 
average greenhouse gas standards where compliance with the fleet 
average is determined based on the testing performed at time of 
production, as with the current CAFE fleet average. EPA is also 
establishing in-use standards that apply throughout a vehicle's useful 
life, with the in-use standard determined by adding an adjustment 
factor to the emission results used to calculate the fleet average. 
EPA's program will thus not only assess compliance with the fleet 
average standards described in Section III.B, but will also assess 
compliance with the in-use standards. As it does now, EPA will use a 
variety of compliance mechanisms to conduct these assessments, 
including pre-production certification and post-production, in-use 
monitoring once vehicles enter customer service. Under this compliance 
program manufacturers will also be afforded numerous flexibilities to 
help achieve compliance, both stemming from the program design itself 
in the form of a manufacturer-specific CO2 fleet average 
standard, as well as in various credit banking and trading 
opportunities, as described in

[[Page 75087]]

Section III.C. The compliance program is summarized in further detail 
below.
2. Compliance With Fleet-Average CO2 Standards
    Fleet average emission levels can only be determined when a 
complete fleet profile becomes available at the close of the model 
year. Therefore, EPA will determine compliance with the fleet average 
CO2 standards when the model year closes out, based on 
actual production figures for each model and on model-level emissions 
data collected through testing over the course of the model year. 
Manufacturers will submit this information to EPA in an end-of-y